Netflix: The Original - [Business Breakdowns, EP. 86]

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Nov 30, 2022

Ben Weiss, Chief Investment Officer of 8th & Jackson, dives into Netflix's captivating journey from DVD rentals to streaming dominance. He discusses Netflix's innovative culture, the strategic shift towards original content, and the financial landscape impacting subscriber growth. The conversation highlights Netflix's unique marketing approach, challenges like password sharing, and future growth strategies, including potential advertising tiers and gaming investments to maintain competitive edge and enhance user engagement.

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INSIGHT

Netflix's Evolution and Scale

Netflix has evolved from DVD rentals to streaming and from licensed to original content.
It operates in 190 countries, boasts 227 million subscribers, and generates $30 billion in revenue.

INSIGHT

Netflix's Culture and Leadership

Netflix's culture prioritizes top talent and a performance-oriented environment.
Their values emphasize member satisfaction and bold, all-in investments.

ANECDOTE

Reed Hastings' Courageous Decisions

Reed Hastings demonstrated resilience during challenging times, like the DVD-streaming split.
He consistently emphasizes focus on content, product, and marketing.

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This is Jesse Pujji and today we're breaking down Netflix, the pioneer in entertainment streaming. Founded in 1997, Netflix has evolved over the years to become the leader in streaming entertainment with over 200m subscribers globally.

To break down Netflix, I'm joined by Ben Weiss, the Chief Investment Officer of 8th & Jackson. In this breakdown, we go into detail on Netflix, from their culture and tech advantages to how content drives the business to how they may start generating substantial free cash flow in the future. Please enjoy this Business Breakdown of Netflix.

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

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Show Notes

[00:02:14] - [First question] - What Netflix is and their size and scale today

[00:03:49] - What portion of their content is original versus pre-existing licensed content

[00:05:01] - Netflix’s founding story and the three stages of their evolution

[00:07:06] - Their culture and leadership from an investor’s perspective

[00:08:50] - Examples of courageous decisions Reed Hastings made

[00:10:08] - Overview of the streaming market and how it’s impacted Netflix

[00:11:28] - How to think about the competitive landscape as it exists today

[00:15:36] - Overview of their P&L starting from revenue and working down to EBITDA

[00:17:51] - Thoughts about unit economics and customer churn

[00:20:28] - Evaluating how much pricing power they have

[00:22:47] - How much headroom there is in the US for incremental subscription growth

[00:25:43] - Other big revenue drivers and potential opportunities to sustain their trajectory

[00:27:21] - The impact on Netflix’s churn rate when Disney Plus launched

[00:28:31] - Capital allocation and profits spent producing original content

[00:31:25] - Content spend compared to their competitors and the economics of licensing existing content

[00:36:09] - Noteworthy numbers and strategies when it comes to marketing

[00:38:19] - R&D spend and technology advantages that Netflix has

[00:45:34] - Other unique aspects about Netflix that are worth mentioning

[00:46:44] - The bull case for Netflix and what would allow for their continued success

[00:49:54] - The biggest risks for Netflix and the bear case for the business

[00:51:12] - Lessons for builders and investors when studying Netflix’s story

[00:55:10] - Where to go to learn more about Netflix