By CCN Markets: The walls are closing in on Netflix. Apple is not only going to debut its streaming video service within the next two months but has boosted spending on its service from $1 billion to $6 billion.
This gigantic capital increase is a vote of confidence in Jamie Erlicht and Zack Van Amburg, whom Apple poached from Sony TV studios following the pair’s incredibly successful run there overseeing original programming.
To those of us who had experience with these executives, the hire was not only a no-brainer but a brilliantly executed surgical strike. Apple has taken a very diligent approach toward creating new programming.
Apple’s flagship premier will be “The Morning Show,” to which it committed to full seasons worth of episodes, at a cost of $300 million. The cast includes Steve Carell, Jennifer Aniston, and Reese Witherspoon.
The strategy of launching a high-profile, extremely expensive, star-driven vehicle duplicates what Netflix did when it began original programming with “House of Cards.”
While one should not expect every show coming out of Apple to cost $150 million per season, its initial slate does suggest Apple is going for the quality approach to programming, a standard originally set by Home Box Office.
Apple TV Plus is apparently going to cost $9.99 per month, substantially undercutting Netflix and priced at just $3 more per month than Disney+.
Whether or not that price point remains the same over time will be determined by how popular the programming is and what kind of demand Apple sees for the service.
Regardless, Netflix is beginning to resemble a leaking boat that management is desperately trying to bail water out of.
It’s one thing when competition was limited to Amazon and limited offerings from Hulu and other smaller streamers. Now the big boys are getting into the game, and the risk of them stealing Netflix market share is very real.
In addition, in case you haven’t noticed, the content quality at Netflix seems to be declining.
Ed Butowsky, Managing Partner at Chapwood Capital Investment Management, tells CCN:
“Netflix now must fend off Disney’s service at $6.99, Apple’s at $9.99, Amazon, Hulu, and CBS All-Access, which will now have the combined CBS and Viacom libraries. Households will only want two or three services, and Disney will be a lock for families. Once Apple is sampled and ramps up shows, Netflix will be in real trouble. Not only that, $6 billion is chump change to Apple, whereas Netflix has to raise high-yield debt to fund its shows.”
Netflix’s $130 billion valuation remains outrageous, and even that is a 33% haircut from its $190 billion valuation. It was once thought that Netflix would always have a backstop, in that it could be bought out by one of the studios or even Apple or Disney. That’s certainly not the case since competitors will have their own streaming platforms.
Netflix stock cracked through the $300 threshold today, which certainly doesn’t bode well for the future.
Last modified: August 20, 2019 20:57 UTC