Netflix’s New Math & a Wall Street Travesty

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Netflix’s New Math & a Wall Street Travesty

With markets off their euphoric highs, the conventional wisdom appears to have changed overnight for Netflix, Zaslav, and the bond desk at Goldman Sachs. Does it change the risk calculus for Shari, too?

WILLIAM D. COHAN

As my partner Matt Belloni recently noted, there’s plenty of agita on Wall Street these days about the economics of streaming video, leading some inside Hollywood to question whether the total addressable subscription market for Netflix and its leading rivals might be smaller than they imagined. With the markets off their euphoric highs, the conventional wisdom seems to have changed overnight. Disney+ is adding an advertising tier, HBO Max is experimenting with pre-roll ads, and former Disney executive Kevin Mayer predicted at SXSW last week that even Netflix would have an ad supported tier within two years. Given its immense stock slide, does Netflix have a choice?

Personally, I wouldn’t think that such a momentous decision—offering an advertising tier to its pricing model—would have anything to do with the slide in the price of Netflix’s stock, which is down 36 percent so far this year. This isn’t Reed Hastings’ first rodeo. He knows better than anyone how volatile the Netflix stock can be. And even if, as Matt pointed out, the total addressable market for SVOD isn’t as big as everyone hoped, or was just total fiction to begin with, of course on-demand streaming is here to stay, either with or without advertising, and more and more people are going to sign up for it, even if they do so at a slower rate than previously projected.

Let’s take a step back for a minute and look at the numbers...

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