Wednesday, July 25, 2018

Disney, Fox and Netflix

I apologize for this, but the only really good summary I've found of the impact of the Disney Fox merger (particularly on Netflix) is this interview with the Hollywood Reporter's Kim Masters. Not only do I not have a text version, but I can't even get it to link directly to the relevant story. Instead, the best I can do is suggest you fast-forward the segment to about 16 minutes in, immediately after the execrable  Jeremy Peters).

One of the strangest aspects of the Netflix coverage has been the disconnect the way the story you get from the NY media vs what you hear in LA. In many ways, this echoes what we saw with over the air television and the rise of the terrestrial stations a.k.a. diginets. Major NYC news organizations like the New York Times and Wall Street Journal completely (and I do mean completely) ignored the story even after most major media players (including NBC/Universal, CBS, Fox, Sony, producer Mark Burnett, and somewhat indirectly Disney) jumped on the bandwagon.

With Netflix, no one could accuse the East Coast journalistic establishment of not covering the story, but they have repeatedly ignored, distorted, or dismissed the take coming from people who actually know the industry. The standard argument is that industry experts don't understand the new economy or the Silicon Valley Way of doing things. I vaguely seem to recall a story about a medical testing company that made similar arguments. Perhaps I should go online and try to find out what happened to them.

One idea which is treated as credible by investors and the financial press while seen as completely absurd by anyone with knowledge of the business is the idea that the company can, in a relatively short period of time, create a content library that rivals that of the major studios in quantity and quality. It's true that Netflix is spending a great deal of money producing new shows, but even if they were doing this in the smartest possible way and getting the greatest possible bang for their buck (which they aren't) it would still be a tiny fraction of the investment they would need to make.

As industry watchers have previously noted, Disney was already big and powerful enough to devastate, possibly even destroy, Netflix by going with another streaming service or starting their own. With the Fox acquisition, the company's content library is much larger and it now owns a majority share in the Netflix competitor, Hulu.

None of this is an especially recent development. I need to go back and check the exact timeline, but for at least a few weeks and possibly a few months, the big question is not been "will someone by Fox pictures?" But rather would it be Disney or NBC/Universal/Comcast? In those weeks or months, any analysis you've seen that defends Netflix's skyhigh valuation and doesn't address this issue should be ignored as worthless.

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