Netflix Finds New Data Streams

By Jeremie Mutolo

The past several years has seen a rise in consumers who are “cutting the cord” and ditching traditional cable television for online streaming services, the most notable of these being Netflix. Over the past year alone, Netflix has spent nearly $6 billion on original content as competition heats up in the media streaming industry. A major concern investors have had with Netflix, however, has been their over-content viewership, especially at a time where entertainment studios are beginning to pull their content from the California-based streaming service. Nielsen is seeking to de-mystify the numbers behind Netflix’s audience.

This past October, the ratings giant announced that it would begin collecting data on the amount of viewers for Netflix’s licensed content in a service called Subscription Video On Demand (SVOD) Content Ratings. A report by Nielsen stated that several studios have already expressed interest in the data, including Disney-ABC Studios, Warners Bros., and NBCUniversal. The service will soon begin releasing data on other streaming services such as Hulu and Amazon in the near future, but what does this mean for Netflix moving forward? Netflix has been burning cash trying to maintain its edge as the number one option for online streaming. However, since 2012, Netflix’s content catalogue has decreased by nearly by 50 percent, a trend it is attempting to reverse by pumping its shelves with original programming.

Overall, it appears that sentiment for the stock is fairly ambivalent: it has a TTM P/E ratio of 193 versus a forward P/E ratio of 88, yet many Wall Street analysts see shares rising to $300 within the next several months. Netflix has elucidated the point that providing quality content that viewers want to watch is more important than distribution, thus becoming the “king” of content. However, Nielsen’s new service has the potential to derail the hype surrounding the stock. We already know that certain Netflix shows such as Orange is the New Black, Stranger Things, and House of Cards have massive viewerships, but Netflix’s catalogue includes far more than just these shows. For a negative cash flow company, it is surprising to see that over the past several years, Netflix has increased the amount of money it spends on original content. Yet, shows such as Marco Polo, which command an exorbitant budget, have flopped, leading investors to question just how profitable it is for Netflix to continue churning out shows at this pace and price. At the very least, the Nielsen ratings will make public information that could serve to curb Netflix’s content enthusiasm and perhaps justify the stock’s immense valuation.