The shares soar…
Unless something dramatic happens in the last couple of trading days before New Year, then the best-performing company on the S&P 500 over the last ten years will be Netflix. Measured since the start of the decade, it was the top performer on the index with an overall gain of 3,767% (the little known MarketAxess Holdings was in second place; Amazon came in at ninth). Netflix floated back in 2002, at $15, but for the next eight years it drifted aimlessly, attracting little interest from investors, or viewers for that matter. It was only at the start of the 2010s that it really took off. At its peak last year the shares were priced at more than $400. Anyone who bought in early has made a lot of money.
But it is not just about the share price. It is about influence: Netflix has been the most disruptive firm this decade. It has turned not just one but two of the world’s biggest industries upside down. Broadcasting has been transformed. Traditional terrestrial and pay-TV have both been left looking quaintly old-fashioned compared with the streaming giant and its conveyor-belt of high-quality, big budget TV shows. With a spend of more than $10bn a year on new productions, it has mastered the art of creating programming that people talk about. With the possible exception of HBO, no other company comes close. Even the film studios look lame by comparison. It has forced Disney, HBO and, in this country the BBC and ITV, into launching rival services.
… but will profits ever roll in?
It is not just TV, however. With 158 million subscribers around the world, the tech giants are understandably nervous about the lock Netflix has on its customers. Amazon is now spending billions on TV shows, and so is Apple, while Google is launching more and more original content on its YouTube platform. Increasingly, streaming TV is seen as a gateway to a host of other products and services, and the web companies have refocused around that.
But Netflix’s influence goes beyond that. With subscriptions and streaming it has created a whole new business model. Sure, people have always subscribed to things, such as newspapers and magazines, gyms or maybe a wine package. Netflix took it to a whole new level. It showed that customers are more than happy to pay a small monthly fee for unlimited access to a product they want. That model is starting to spread. We now get music from Spotify, razors from Harry’s, books from the Kindle store. Pretty soon, instead of buying a car, we might just pay a monthly fee to use a ride-sharing app.
Netflix made it clear that streaming services is often a more powerful offering than selling things. And its mastery of the algorithms, data management and customer service needed to make that work smoothly means it may well turn into the most powerful player in the sharing/streaming economy. To take just one example, if the world moves to shared, driverless cars, then Netflix may have a lot more relevant expertise than either Ford or Toyota: building the cars won’t be especially difficult, but getting the right one to your door on time will be.
True, Netflix still doesn’t make any money. It has become brilliantly successful at taking lots of cash from Wall Street and giving it to TV producers, actors and writers. Whether it can do that profitably remains to be seen. Even so, there is no question its impact has been huge. It was the most influential company of the decade as well as the most rewarding for investors.