Netflix stock is down about 70% since the start of the year, and I’m worried and feel a tad guilty. I’ve never owned Netflix shares, but I’ve been a consumer of their content at what I consider to be a ridiculously unfair bargain in my favor.
The premium monthly Netflix subscription is $20. My wife and I watch at least 20 hours a month of what we consider to be terrifically entertaining and high quality content. Completely free of commercials. That’s fifty cents per hour per person.
That excludes shows that are filler until the next Ozark or Fauda or Shtisel or The Bureau comes on. That also excludes the impact Netflix has had in forcing other streaming services to up their game in their production of original content.
How has this come to pass? Netflix had been able to invest billions in original content based on two factors: access to very cheap capital and an ever growing subscriber base over which to spread the cost of their content.
When Netflix recently reported that subscribers had stopped growing, their stock price plunged. So, with one fell swoop the basis for their original content business had been called into question. The inevitable solution will be some combination of higher prices, commercials, or a scaling back of content in quality or quantity or both.
My general point is that If the tech bubble continues to burst, the losers will not only be the people who owned the companies, but all of us who benefitted from the companies’ access to cheap capital. In addition to Netflix, my personal list includes Uber, Zoom, Docusign, and Peleton. I don’t think any of those companies will cease to offer their products and services, but it is unquestionable that their previous valuations allowed them to offer us goods and services of high quality at an incredibly cheap price.
Amazon is the elephant I haven’t mentioned. They too offer what I consider to be a bargain in terms of shopping with near-immediate gratification as well as the increasing quantity and quality of their original media content. But they also have an enormously profitable cloud business that implicitly subsidizes what we as consumers can get.
There’s also Google, which I am immensely grateful for. But they seem to have a business model that is highly profitable, sustainable, and not subject to a diminution in quality for the price of seeing ads.
Capital priced too cheaply (which can only be measured in hindsight) can produce a substantial uptick in our standard of living. When the price of capital comes down to earth, as it almost inevitably does, we all lose. So, the next time the share price of a former financial market favorite plunges, consider where you aim your schadenfreude and whether it might effectively be a boomerang.
Interesting take - you might enjoy this article too (https://www.nytimes.com/2021/06/08/technology/farewell-millennial-lifestyle-subsidy.amp.html)
Simple: just short each of these companies a few dollars per month to hedge against any price increases.