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Don’t Let Reality TV Scare You Away from Netflix, Inc. Stock

Netflix stock - Don’t Let Reality TV Scare You Away from Netflix, Inc. Stock

Source: Vivian D Nguyen via Flickr (Modified)

Although the reality TV genre wasn’t yet dead as of 2015, the consensus then was that it was dying, having run its course of being able to keep “reality” fresh and interesting.

As it turns out though, reality TV wasn’t necessarily facing its end then. It was just in need of a reboot. Netflix, Inc. (NASDAQ:NFLX) has quietly provided the reboot of, and a new platform for, the genre. While without explicitly saying so, programs like Terrace House and Chasing Cameron have put the streaming video giant in the reality TV market for a couple of years now.

There’s no denying, however, that the company is stepping up its game on this front. Just a couple of weeks ago, Netflix signed former White House residents the Obamas to star in yet another Netflix-produced reality series. And that’s just one of several new reality shows in the works as the company embraces and embellishes its home-grown content.

The big question is, is Netflix wading too deep into reality TV waters again, creating the very saturation that nearly killed this kind of television a couple of years ago?

Gettin’ Really Real

We’ve come a long way since MTV first aired The Real World back in 1992, kicking off (unbeknownst at the time) an explosion of unscripted television programming. Some thought 2000’s Who Wants to Marry a Millionaire might also end the genre in final blaze of glory. But, as it turns out, that trainwreck wasn’t a wake-up call humanity would respond to. Rather, we gave into our basest voyeuristic tendencies and demanded more.

Even the merging of reality TV and a major Presidential election, with the rise of social media to fan those flames, wasn’t enough to prod a rethinking. If anything, it may have expanded our love for this kind of programming.

And we do love them. Though drama is still the number-one draw to the television, reality TV has easily surpassed sports and just eclipsed comedy to become the second-most watched kind of television programming.

Netflix is looking to take it up another notch.

Yes, the program that will feature Barack and Michelle Obama in post-Presidential life will be interesting to be sure, though CEO Reed Hastings has much more in mind. Also in the works are a show called Fastest Car, a show called First and Last (though nobody seems to know what it’s about) and even a controversial show called The Push, which will attempt to see if an unsuspecting individual can be pushed into a committing a murder.

Crunching the Numbers

Controversy aside, the new focus raises questions for current and prospective owners of Netflix stock: Is this the best use of the company’s content budget, which was set at as much as $8.0 billion for the year underway?

It’s difficult to say, in some senses.

While viewership of reality TV delivered through cable channels is measurable using companies like Nielsen Holdings PLC (NYSE:NLSN), which ultimately dictates advertising prices, Netflix doesn’t sell ads.

It also doesn’t parse out different kinds of content at different prices. All members pay the same price for access to the same streaming content, whether it’s watched by all members or not.

Still, the same basic premises should apply; Netflix knows how many users are watching a particular program, and will add more of the same kind or subtract the same kind as necessary. Eventually, revenue will be maximized and waste will be minimized.

Just for the record though, the business of reality TV isn’t as good as it used to be. Rising expenses, waning pay, stingier studios and the simple fact that the market is flooded with these types of shows makes the genre anything but a sure thing.

That’s an incredible and alarming reality (no pun intended), especially given that unscripted programming is considerably cheaper to produce than drama. On average, a half-hour of reality TV costs anywhere from $100,000 to $500,000 to create. If that’s not cheap enough for studios or networks to turn a profit with, then perhaps the program just isn’t interesting enough.

It’s a paradigm that may or may not apply to Netflix though. Once produced, Netflix members can watch its reality TV at any time, in perpetuity. Not so with networks.

Netflix may also be less concerned than conventional TV about costs and corresponding revenues assigned to one specific program. As Wheelhouse Entertainment’s founder Brent Montgomery recently, bluntly put it, “We get to pitch Amazon and Netflix, who are not so concerned right now with profit margins and ratings.”

It may not be reality TV that prompts a consumer to become a Netflix subscriber, but it may be what retains them as a subscriber. That’s a discussion relatively unique to Netflix.

Bottom Line for Netflix Stock

To answer the not-entirely-rhetorical question, no, Netflix isn’t crazy for wading deeper into reality TV waters, even though there’s more than enough reality television content for consumers to enjoy. There’s always room for more good content of any kind, and Netflix — albeit not every single time — creates more compelling content than flops.

There’s an X-factor in play here, too, that’s not being discussed much. That is, Netflix’s reality TV can be a little more ‘real’ than the reality TV found on mainstream network channels.

Without restrictions in terms of language, nudity, violence, and other graphic topics, Netflix’s versions of these programs will better reflect the reality most consumers actually live and breathe every day outside of network television’s sanitized content.

Whatever’s in the cards content-wise, look for Netflix’s reality television effort to continue drawing in and keeping new users. The genre is alive and well, and has proven it’s got staying power. The only thing to worry about is excessive spending on that effort, to the detriment of other kinds of content.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.

Article printed from InvestorPlace Media,

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