When Amazon (AMZN), which originally found success via e-commerce, and Netflix (NFLX), which originally found success as a content delivery service, each forayed into the world of original content, there was plenty of skepticism.
And for good reason.
Besides the fact that both AMZN and NFLX were moving a bit beyond their comfort realms, the reality is that it’s expensive to create original content, and it’s challenging to create original content that’s actually popular.
However, the release of 2015’s Emmy nominations have given some validation to the strategy.
Netflix, Amazon Rack Up Emmy Nods
Netflix already showed it could create successful original content last year when it racked up 31 Primetime Emmy nominations, largely thanks to the popular series House of Cards and Orange Is the New Black. Those two Netflix staples were nominated again this year on the way to Netflix’s grand total of 34 nominations.
Amazon racked up 12 nominations of its own, including a couple for Amazon Instant Video comedy series Transparent.
NFLX, for one, claims that original content costs the company less money (relative to viewing metrics) than most licensed content — which makes the success even more bullish from an investment perspective. Still, Netflix does acknowledge that a shift toward original content — although it generally replaces spend on other content — will increase spend on an absolute basis.
But that shouldn’t be too worrisome to investors, considering Netflix and Amazon have something else in common as well: They don’t really trade on financial fundamentals.
Keep in mind that the S&P 500 is up only 3% since the start of the year. Meanwhile, NFLX has gained 138% this year thanks in part to its recent post-earnings explosion, and currently trades for 350 times expected 2016 earnings. And AMZN, after its insane 54% run, trades for 170 times expected 2016 earnings — although investors are probably excited that earnings are expected at all.
Put another way, investors are hardly breaking down balance sheets as part of their investment theses. They’re betting big on hype and potential (or betting on the idea that other investors will do so).
And that makes a seemingly fluffy headline about Emmy nominations a bigger deal for these two stocks — because awareness and brand buzz play a larger role for AMZN and NFLX than it would, say, a Consolidated Edison (ED) or a General Electric (GE).
However, there’s a little bit more than mere fluff here.
A Path to Legitimacy for AMZN, NFLX
Consider what it’s like to be in the content market: If you’re a director or producer, you want to choose a distribution model that has lots of eyeballs attached to it. If you’re a content distributor, you want legit, successful, popular directors and producers. The relationship between the two is a classic chicken-and-egg situation — more professionally referred to as a two-sided market and seen in other industries like app development as well.
With that in mind, successful original content also means added incentive for folks with top-tier shows and stars to choose Amazon or Netflix as their means to viewership.
Just a few years ago, such a choice would have seemed ludicrous. How crazy does it seem now?
If Amazon and Netflix actually take home some Emmys when the winners are announced, it will be yet another feather in the cap that could keep the snowball effect rolling downhill.
After all, it will be an even stronger indicator that original content is paying off and will continue to pay off for both AMZN and NFLX.
Expect investors to applaud.
Alyssa Oursler is based in San Francisco and writes about technology, investing, gender and entrepreneurship. Her work has appeared on Business Insider, MSN Money and more. You can follow her on Twitter here or check out her personal site here. As of this writing, she did not hold a position in any of the aforementioned securities.