(Bloomberg Opinion) -- “Look away, I’m hideous!”
Fresh off its costly deal for the exclusive streaming rights to the sitcom “Seinfeld,” shares of Netflix Inc. are officially in the red this year. That’s as HBO’s parent AT&T Inc., Walt Disney Co. and other old world media giants surge.
A five-day losing streak sent Netflix’s 2019 shareholder return into negative territory this week, a harbinger of the intense competition soon facing the company. The streaming pioneer operated for years without any true rivals; beginning in November, that will all change, with a handful of intriguing new subscription video services rolling out in close succession. Apple Inc.’s Apple TV+ kicks things off with its Nov. 1 launch, followed later in the month by Disney+, which will also offer a discounted bundle rate with its Hulu and ESPN+ products. Next spring, AT&T’s WarnerMedia division will introduce HBO Max around the same time Comcast Corp. rolls out its delightfully named Peacock app, a tribute to its NBC logo. (Kudos to Comcast for resisting the urge to add a “Max” or mathematical equation to the name like the rest).
Netflix faces a twofold challenge: There’s the threat of losing customers to these new services, as well as the need to keep spending on content to prevent that from happening. While the terms of its “Seinfeld” deal weren’t disclosed, the price tag reportedly exceeded the $500 million that Comcast’s NBCUniversal paid for a similar transaction involving “The Office;” AT&T’s WarnerMedia also struck a $425 million deal to stream “Friends” re-runs, which will disappear from Netflix in 2020. (See “HBO and Netflix: From ‘Friends’ to Foes.”) Those are hefty terms for shows that haven’t aired fresh episodes in quite some time – 21 years in the case of “Seinfeld” – though they have cult followings that have generated long hours of binge-watching.
Jeff Wlodarczak, an analyst for Pivotal Research Group, sees Netflix’s annual cash outlay for content climbing to $35 billion by 2025. Keep in mind that the junk-rated borrower burned through $3 billion of cash in the past 12 months and has more than $18 billion of content obligations. Netflix is also valued at an eye-popping 28 times Ebitda, more than double where its closest peers trade. It’s about to go up against companies with deeper pockets and rich TV and film libraries.
Even so, Netflix offers something the other apps may not get right at first: the simplicity of being a one-stop shop, and always having plenty of binge-worthy material. Quality content is important, but the quantity may be what keeps viewers from canceling subscriptions.
The streaming wars are nigh, and as I wrote in April, it was only a matter of time before the raft of looming competition would put Netflix’s dizzying valuation to the test. Now it’s happening – shrinkage.
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Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.
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