Netflix Goes Live
The biggest player in streaming media is set to take on live events. Digital is coming for the physical world, and it is a big opportunity for investors.
Netflix, Inc. (Nasdaq: NFLX) is near a new deal with the producer of “Bridgerton” and “Grey’s Anatomy” that includes live events like costume balls and fan conventions. It could be an important new source of revenue.
The streaming giant is pressing its competitive advantage, and that’s great for shareholders.
To be clear, Netflix managers are not reinventing the wheel. Movie business magnates have been building revenue streams around live events since the first traveling roadshows for Charlie Chaplin and Florence Lawrence.
Pricey tickets for fan gatherings and events inspired by a popular show or film send revenues straight to the bottom line. These real-world shows are also non-competitive. After all, they are based on proprietary media.
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The difference is Netflix managers gave no previous indication of these plans. That’s the opportunity for investors.
The course change may have something to do with Shonda Rhimes, the creator of “Bridgerton,” the second most watched series on Netflix.
Rhimes came to the streaming giant in 2018 after a long stint producing hit shows like “Grey’s Anatomy” and “Scandal” for broadcasters.
Her reported $150 million five-year pact with Netflix was considered ground-breaking. Her next deal will be significantly larger.
According to a story at the Hollywood Reporter, the new agreement could range from $300 million to $400 million for five years. A significant portion of that payment will come from new revenue streams.
A Bridgerton Ball, a lavish film-themed event, is planned for November in London. The Reporter notes that a video game is also in the works.
In addition to feeding profits directly to the bottom line, live events also keep fans engaged as they wait for follow-up seasons for popular shows.
Streaming media companies have come a long way in terms of producing high-quality content.
Streamers showed their dominance in 2021 with a slew of Emmy nominations. The Emmy is considered the highest honor for episodic media generally shown on TV.
On Tuesday, Variety reported that HBO and HBO Max — the streaming properties of Warner Communications — topped the list of award nominations with 130. Netflix scored 129 small scene nods, while Disney+ from The Walt Disney Co. (NYSE: DIS) raked in 71 nominations. NBC was the top traditional broadcaster. The Comcast Corp. (Nasdaq: CMCSA) unit had a paltry 46 selections.
As big as these individual awards are, what’s more important is the overall shift in the streaming trend for critically acclaimed shows.
Streaming services like Netflix and Disney+ have pulled in 208 million and 104 million global subscribers, respectively. For a big portion of people in the developed world, these companies are television. These firms have found an efficient way to monetize spare time.
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It’s worth noting that this past weekend, “Black Widow,” a Disney summer blockbuster film, debuted both in theaters and on Disney+ pay-per-view. The Scarlett Johansson movie earned a staggering $158 million in global ticket sales and an additional $60 million from Disney+.
For the first time ever, Netflix will venture out into the real world to scoop up some of that cash, too.
Since June 2020, Netflix shares have been consolidating in a trading range between $470 and $590. The stock trades at 41 times earnings and 9 times sales. Both metrics are within the historical range for this fast-growing business.
The part investors are missing is the other business opportunities.
Managers at the Los Gatos, California-based company have figured out how to monetize free time, one of the last great business opportunities left unexploited. Now, the company is branching out into lucrative live events.
The new deal with Shonda Rhimes should shine a bright light on those plans. It’s quite possible shares will get a significant revaluation higher.
Longer-term investors should consider using weakness to add new positions.
Jon D. Markman