Netflix’s (NFLX - Free Report) scintillating success over the last couple of years can be attributed to its robust and ever expanding original content portfolio. If a recent MarketWatch report is to be believed, the company is now rumored to be diversifying in “News” coverage.
According to the report, Netflix is in the nascent stage of developing a weekly news magazine show that will compete with CBS Corp’s (CBS - Free Report) long-running 60 Minutes and Walt Disney (DIS - Free Report) controlled ABC’s 20/20 news shows.
Why Should CBS, Disney Worry?
Although Netflix will be a new entrant in the “News” genre, its strategy of continuous portfolio expansion presents significant threat to incumbents like CBS and Disney’s ABC.
News shows have instantaneous appeal and are expensive to make. However, Netflix believes that there is a strong demand for unconventional news shows which are witty & humorous in nature. The company wants to capitalize on this trend and believes that it can offer a “commercially viable” news show.
Netflix’s expanding talk show content portfolio provides it a solid platform in this regard. The company’s aggressive investment strategy — a whopping budget of $7.5-$8 billion to be spent on original content — is enough to create ripples among news show producers like CBS and ABC. The budget is expected to increase further to $12.2 billion in 2020.
Nonetheless, Disney is a potent competitor in our view. The company’s acquisition of certain Twenty-First Century Fox (FOX - Free Report) assets strengthens its over-the-top streaming service, which is tentatively set to launch in 2019. Moreover, the company’s distribution agreement with Netflix also ends in the coming year, which means new movies will only be available on Disney’s streaming service in the United States.
However, Netflix doesn’t view Disney’s entrance into the streaming as a threat, primarily due to its expanding original content portfolio.
Expanding Talk Show Offerings Bodes Well for Netflix
The overwhelming budget has provided Netflix significant ammunition to rapidly expand its talk-show offerings. In January, the company streamed My Next Guest Needs No Introduction with David Letterman show. Notably, David Letterman was a former host of CBS’ Late Show.
Moreover, Netflix started streaming The Joel McHale Show with Joel McHale from February 18. Currently, the company also streams talk show Bill Nye Saves the World. Reportedly, the company has also acquired Jerry Seinfeld’s show Comedians in Cars Getting Coffee.
In February, the company signed deal with Michelle Wolf, a well-known contributor to The Daily Show, for a half-hour late night series that will take a broader look at world events. The company recently inked a deal with The Daily Show’s Hasan Minhaj to host a new weekly talk show. The unnamed 32 episode politically charged talk-show is expected to be stream later this year.
Reportedly, Netflix is in advanced talk with former U.S. president Barack Obama to produce a series of high profile shows.
Although enormous spending on marketing (almost $2 billion in 2018 versus $1.3 billion in 2017) can dent Netflix’s profitability, we believe that the company’s expanding content portfolio will rapidly drive subscriber growth in the long haul.
Currently, Netflix carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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