Date
19 October 2018
Netflix has to keep burning money to cement its leading market position. Photo: Bloomberg
Netflix has to keep burning money to cement its leading market position. Photo: Bloomberg

Netflix investors are more like adventurers

The Economist runs a cover story on Netflix in its latest issue, explaining how the video streaming company used algorithms to identify the different tastes and preferences of its viewers, establishing some 2,000 “taste clusters” for highly personalized marketing.

Nowadays, companies, whether a giant corporation like Walt Disney or a small startup, have to deploy vast resources to provide tailored services to their customers. This is a must.

A US court has recently given the green light for AT&T’s takeover of Time Warner.

Jeff Bewkes, until recently the chief executive of Time Warner, once mockingly asked: “Is the Albanian army going to take over the world?” in reference to Netflix and its ambition to take on the big boys in the media industry.

Yet AT&T’s takeover of Time Warner, or Comcast and Walt Disney competing for 21st Century Fox’s entertainment assets, is all about competing with this “Albanian army”. It’s all about traditional media companies desperately trying to defend their turf against Netflix.

This also tells us how they have failed to see the changes happening in the industry.

Netflix has a mountain of a debt pile, of course. But it has to keep burning money in order to cement its leading market position and achieve a winner-takes-most effect. That’s the so-called Netflixonomics.

Now the money-burning speed of Netflix appears to be in tandem with its share-rising trend.

Although profit is nowhere in sight, investors continue to pile in. Some say Netflix investors have an abiding faith. But I would rather describe them as adventurers.

These adventurers are betting heavily that one day company fundamentals will improve so much and justify its valuation – or even prove that the current valuation is still low.

This article appeared in the Hong Kong Economic Journal on July 3

Translation by Julie Zhu

[Chinese version 中文版]

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RT/CG

Columnist at the Hong Kong Economic Journal

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