For any shareholders who thought Netflix (NFLX) had any covert, secret plans to get into the live-broadcasting business, it doesn’t.
Yes, the Netflix streaming service that delivers a ton of older movies and television shows plus a handful of original productions may broaden that particular menu in the future.
But CEO Reed Hastings isn’t interested in risking Netflix stock by taking on networks like CBS (CBS) or the specialized cable channels like Disney (DIS) property ESPN in a game they’ve already mastered.
The reason Hastings isn’t interested in picking those fight, however, may different than what we’ve been led to believe.
Just Say No
The premise of streaming video service Netflix adding live television to its fare isn’t a new one to Netflix stock owners. The idea was first legitimately considered — and duly rejected — as far back as 2013.
Hasting reiterated that decision earlier this week, though, at a DealBook conference in New York. Specifically, Hasting said:
“You don’t want to invest in things that are dying.”
Ouch.
That particularly comment was aimed at news programming, though he wasn’t any more enthusiastic about the prospect of adding live sports programming.
While Hastings didn’t dive into the details of the rationale at the DealBook conference, the most plausible reason for Netflix’s disinterest in both live news and live sports has been well documented in the recent past. That is, live news isn’t a particularly great money-maker, and live sports is stunningly expensive to secure the rights to.
As evidence of the latter, one only has to examine the pressure ESPN has been under lately. Squeezed by rising costs of rights to broadcast games and an increasingly-disinterested viewer base (not to mention the burgeoning expense of on-air talent to commentate a game), Disney is making drastic cuts.
As for televised news, the advent of web-based alternatives and credible amateur-created venues has, as Hastings explained, put news television on a crash course with irrelevance.
The Bigger Reasons
To be fair, Hastings’ comments about live sports and live news were accurate. On the flipside, those explanations aren’t the core reasons Netflix stock can’t be a dual live/on-demand digital broadcasting venue.
First and arguably foremost, live events are dramatically outside of the current NFLX wheelhouse.
There’s no denying Netflix has mastered the art of assembling and marketing a library of digital video content. The addition of live feeds, though, necessitates the assembly of a live filming crew and staff, and while it can be done, Netflix has no experience in those matters.
Yes, it could outsource the filming of live games and news, but only at a cost it couldn’t easily pass along to subscribers. It could truly prove to be an expensive headache.
Second — and it’s a close second — the Netflix subscriber base is largely one that’s already identified themselves as viewers who don’t care about missing live news or sporting events.
While that’s not to say those subscribers won’t view live programming if available, news and sports won’t prompt a significant amount of new signups for the Netflix streaming service. It would take a massive amount of live programming to nab a die-hard cable fan away from the traditional service, which delivers but one or two major sporting events per day.
Netflix simply can’t afford to compete with the entire spectrum of sports and news on cable television today without charging comparable fees.
Third, a massive amount of competition is brewing now that the lines between the internet and cable television and on-demand and live broadcasts are being blurred. Yahoo! (YHOO) recently broadcast an NFL game online (for free). Time-Warner (TWX) now offers a great number of on-demand programs for free to subscribers. And, though it’s not ready yet, Apple (AAPL) is still working on a set-top box and apps that will allow TV watchers to choose cable channels on an a la carte basis.
While Netflix can arguably hold its own against new competition in the arena of live streaming video, there’s always a player in that arena willing to perform the same or a similar service for less, even if it means taking a loss.
In other words, Netflix would be better off doing what it (and its customers) know it can do well, and not tip-toeing into waters where it may or may not dominate.
Bottom Line for Netflix Stock
Maybe Netflix will wade into those waters later? Never say never, but this isn’t a likely down-the-road possibility, either. After all, at least the line between “live” streaming and “on-demand” archives is one that can never be blurred.
Netflix ought to know exactly how dangerous it is to cross over into turf where someone else is dominating. Just look at how many have attempted (and failed) to challenge Netflix in on-demand streaming.
The best thing for Netflix stock right now would be to just stay put.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
