Why Does Netflix Make So Many Movies?
The Answer Is Positive Asymmetrical Risk/Reward
Not intended to be investment advice. I do not currently own or plan to buy shares in Netflix.
I’ve been thinking more about Netflix since I finished this post the other day:
Netflix likes to invest in and release large volumes of new shows and movies including possible blockbusters all at once. This is really different from a movie studio’s strategy where they want to stagger the releases of potential blockbusters.
Again, it comes down to the distribution model. Movie studios want a blockbuster to remain in theaters for just the right amount of time because movie distribution is a scarce resource — there are only so many weekend nights in July and only so many screens in each theatre. Too short and there is the opportunity cost of lost ticket sales. Too long and revenue per showing declines and it eats into the revenue opportunity of their next film (blockbuster season lasts for only so many months each year).
