
Ashwath on Valuation: Netflix - The Future of Entertainment or House of Cards? - yarapavan
https://aswathdamodaran.blogspot.com/2018/04/netflix-future-of-entertainment-or.html?m=1
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yarapavan
It is worth taking a pause, and considering the differences between Netflix
and Spotify, both subscription-based business models, that draw their value
from immense subscriber bases.

1\. By paying for its content, both licensed and original, and using that
content to go after subscribers, Netflix has built a more levered business
model, where subscribers, both new and existing, have higher marginal value
than at Spotify, where content costs are tied to subscribers listening to
music.

2\. The Netflix model, which is increasingly built around original rather than
licensed content, provides for a stronger competitive edge, which should show
up in higher renewal rates and more pricing power, adding to the value per
subscriber, both existing and new.

3.The Netflix model will deliver higher value from subscription growth than
the Spotify model, but it comes with a greater downside, because a slackening
of that growth will leave Netflix much deeper in the hole, with more negative
cash flows, than it would Spotify.

