Friday, June 14, 2013

Edging away from the genius hypothesis

There have long been two extremes in the possible views of Reed Hastings' tenure as co-founder and CEO of Netflix. The first is visionary media genius in the mode of Ted Turner; the second is someone who lucked into a couple of good ideas then started believing his own press. The Ted Turner hypothesis took another hit recently and it has nothing to do with Arrested Development not being as good as you remembered.

General interest original scripted programming may get most of the press, but, from a business standpoint the picture is quite mixed. Only a handful of cable channels have clearly turned a profit with that strategy and then only under a fairly special set of conditions and synergies. The real money in television is usually in less glamorous places like shows for kids.

Children's programming has always been one of, if not the main drivers of home theater dating back to the earliest days of television as a mass medium. Children tended to be voracious viewers and excellent (albeit indirect) targets for advertising. With the advent of cable and home video, television became even more heavily used as a quiet, unsupervised activity for small children.

Which is why this story from the Wall Street Journal is a much bigger deal than another season of House of Cards.
One day late last month, Kristin Johnson turned on Netflix Inc. NFLX -3.18% and was upset to find that programming from the Nick Jr. kids channel had disappeared from the streaming video outlet, including some of the favorite shows of her two young children.

Netflix and the channel's owner, Viacom Inc., VIAB -2.19% had failed to renew their licensing agreement covering a broad range of TV content. But on Tuesday, Viacom announced an agreement with Netflix's biggest online rival, Inc., AMZN -1.13% granting that company the streaming rights to hundreds of its shows, including exclusive rights to Nick Jr. programming.

I know we've hit this point a lot at Stat Views (particularly back when we were talking about Groupon and the Facebook IPO), but I think the topic's good for at least one more whack: press coverage drives stock prices but what drives press coverage is often weakly, and sometimes inversely, correlated with what makes a good investment. Buzz-heavy original programming would definitely seem to qualify.

If it loses its synergies with the DVD market (something it's been eager to do), Netflix will be facing an ugly competitive landscape. Hulu's a child of the big content providers. Amazon has the ecosystem and very deep pockets. All Netflix has is a big but unhappy customer base and a high profile but overrated corporate image. It can't afford to make mistakes.

A losing Nick Jr. is a doozy.

p.s. I just read Felix Salmon's recent piece on Netflix. I strongly disagree with where he ends up but it's an interesting argument. More later.

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