Netflix Embraces Outlier Approach As It Looks To Build Off Strong Earnings

Summary:

• It’s been a busy week for Netflix, with the exit of a top executive and the addition of the WWE brand – on top of its latest earnings report.
• While Netflix’s earnings came in stronger than expected, the departure of film head Scott Stuber and its WWE deal has been an equally big topic of interest.
• Stuber leaving is rumored to be partially tied to Netflix’s continued reliance on the day/date approach vs. windowing, the latter of which has worked well for its rivals.
• With WWE the deal moves Netflix further into the sports realm it had resisted for years, but instead of going full-tilt into mainstream, they’re specializing in niche content.
• Netflix has always thrived as a disruptor and they continue to embrace outlier content/approaches. But they also have to pay attention to the marketplace to ensure negative history doesn’t repeat.

The more things change the more they stay the same.

It’s not the first time I’ve used that to open a piece about Netflix (NASDAQ:NFLX) and it looks like it won’t be the last either. The streaming leader continues to take giant steps forward yet remain tethered to one of their original core ideas.

They are consistent, I’ll give them that.

So how is it possible to keep making major advances while still being stuck in the same place? And will this charmed run continue into the future?

First as always, some background.

It’s been a busy few days for Netflix – first, its head of films Scott Stuber stepped down and not a day later they make the bombshell reveal that they are becoming global partners with WWE (TKO).

Oh, and then they had their earnings.

And yet somehow the earnings are the least surprising news of the week.

I’ll get to them – but the Stuber and WWE news is something really important for investors to understand because of what they signal.

This is not just a routine executive news brief and content announcement.

This is incredibly telling to the long-term future of Netflix and it furthers strengthen their position as a rock-the-boat outlier in the space.

Let’s take it from the top with Scott Stuber.

The hiring of Stuber was a big sign from Netflix that it wanted to take its entrance to film seriously. A former executive with a ton of credits to his name, Stuber also came with a solid reputation within the industry.

It was meant to signal that Netflix was willing to work to find some equal ground to adjust its day/date model that made them a pariah with the distributors, theaters and studios. And true to his vision Stuber did try to bridge the gap between day/date and theatrical exclusivity. While he came close, theaters dug in and turned down any real deal and Netflix was content to make its own terms… again.

Then came COVID.

The irony here is that the same terms Stuber tried to negotiate with theaters have since become more traditional in this new post-pandemic normal. For example it’s now not uncommon for a movie to go from screen to stream in 30-45 days… which was what Stuber pitched for Martin Scorsese’s The Irishman.

But what’s telling is that while theaters have become more willing to shorten the window, it’s Netflix that has now pulled away the football. Netflix seems even more anti-window than it was back when Stuber took the helm.

Even when we have seen it work – i.e. Glass Onion – A Knives Out Movie.

The team firmly believes it makes movies for home viewing and there’s little need to support the theatrical experience. This, despite Amazon and Apple seeing success from the split model.

The feeling is Netflix left money on the table by not giving Glass Onion a elongated theatrical run and not giving its AAA tentpole Red Notice any type of run at all. From the Netflix side, they see it as not supporting anything other than their core model, but from the industry side, they see it as building a bridge to that core model.

The success of movies like Air, Napoleon and Killers of the Flower Moon only make them more enticing to subscribers when they come on the service. And given two of those films run three plus hours, subscribers may also prefer that option.

But alas Netflix seems steadfast in its approach and buried in most of the stories about his departure, sans Deadline, is that Stuber seemed to be ready to go because the company had changed away from the direction it was when he was hired.

And you can’t blame him.

If part of your job is to work with the industry, you have to be able to work with the industry and that means some authority to offer some real type of give and take.

Stuber’s exit all but solidifies that Netflix has no plans to alter what it sees as a solid business model with film. Yes, they have and will continue to have success, but they also still have an optics problem with some in the industry and an oversized roster of movies that all dilute each other.

Stuber had tried shifting to a “quality” vs. “quantity” approach because he saw the cannibalization of the product… but will that continue when he leaves? We’ll have to wait and see.

And then there is the WWE of it all.

Where to start here?

Wow.

That 10-year, $5 billion deal for Monday Night RAW came out of nowhere.

Yes, there had been buzz a streamer was looking at WWE, but I don’t think many actually expected the deal to go in that direction, let alone go to Netflix.

Part of the reason was because if there was one thing Netflix seemed more uninterested in than a theatrical window it was sports programming. And on top of that because Peacock essentially absorbed the WWE network a few years ago its content was already heavily invested with another service.

Turns out, it didn’t matter.

While Peacock (CMCSA) will keep that content (for now), Netflix was content to take it over for the international market which collectively is a much bigger stage.

It also turns out the Netflix sees WWE as a sport in the same way the average fan does – it is but it isn’t. It’s sports entertainment and sports adjacent which fits perfectly into their plans. While they have no desire (for now) to go after the big sports leagues, they’re happy going after other niche type of groups such as F1 racing or niche categories from the majors such as documentaries.

They could get that content for a lower price and have a lot more control over it at the same time.

Now the issue with WWE is that while it is a big win for Netflix, it’s not really one for the fans. Suddenly what was once free content will cost a lot more. In the history of WWE, its flagship program Monday Night RAW had always been on cable TV – first USA Network, then to Spike TV/TNN and then back to USA Network.

The Comcast-owned USA Network saw the writing on the wall early and quickly moved to sign WWE’s Friday Night Smackdown to ensure it wasn’t left without a WWE brand product when the bidding for RAW went over their max… so at least that and training ground series NXT will remain free (NXT airs on the CW).

However RAW is the original WWE series, it still carries the most weight and it still is a Monday-night tradition with many WWE fans. Yes, WWE has charged for its services in the past, first with WWE Network and now Peacock, but there was a clear value add to that proposition.

Fans would be getting the brands monthly big events for a fraction of the price they were on pay-per-view and at the same time have access to the WWE archive of content. Paying $8 to $10 a month for that extensive offering was welcomed by fans who didn’t want to shell out $40-plus for each month’s big specials.

Now though they are paying that $8 PLUS a Netflix subscription so to fully enjoy all WWE content you are looking at around $15 a month, which is a lot to ask… especially with upstart AEW (All Elite Wrestling) thriving on Warner Bros. Discovery’s networks with a good chunk of the former WWE roster now under contract.

Make no mistake it’s still a win for Netflix. If anything this hurts the WWE brand more, but it likely won’t matter and that’s something WWE knows.

Netflix doesn’t reveal “actual” ratings so nobody will be privy to how much of a hit the ratings may take when the show moves in January of 2025. Netflix and WWE can put out whatever viewing numbers they want and there is no checks-and-balance system… so it will look like a win-win regardless.

This also is another example of evolving their strategy but never straying too far from their overall messaging.

F1 and WWE – aka niche brands – fit perfectly because they see a way to elevate them to a higher level and at the same time engage with their massive base of die-hard fans.

From a Netflix perspective what this pickup does is further solidify Netflix as the outlier it always was from the start. The company has thrived as a disruptor but eventually got a little too complacent and lost some of its edge.

That has of course since changed as of late – at least for now. This week we also saw the company’s latest earnings come in very strong, but many expected that. The system Netflix uses is working, however at the same time investors have to remember they can’t get too comfortable. Netflix’s system was working for years… until it wasn’t. The ebb and flow of streaming ensures a fluctuating market and as we’ve seen before many don’t understand that aspect.

You’ll remember for a while any negative earnings period seemed to set off “the world is ending” type panic. There also are a few of the vocal minority who remain shocked anytime Netflix doesn’t give a rosy repot. As a result, despite being in the minority they scream loud enough to distract from the reality which is traditionally it takes multiple periods or one massive miss in a single period to justify that type of alarm.

And again while successful now, some analysts have gone on record they do still see flags – some believe that while the password sharing crackdown worked, that type of positive impact on numbers may be short lived and others see the stock beginning to once again get ahead of itself.

Being an outlier works for Netflix. They’ve made themselves into a giant going that route and now that they’ve course-corrected they can go back to leaning into that model. The question though shifts to be less about ensuring growth to more about ensuring customer satisfaction to keep that growth stable.

Netflix thinks its film model and entering the WWE space is what will help keep that satisfaction high and they may be right… but as I’ve also said before Netflix’s most important earnings period is always its next one.

The more things change, the more they stay the same.

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