“Content is king”. Cliché today, this phrase was coined by none other than Bill Gates in a famous article, published in 1996. In it, the billionaire claimed that the internet’s great opportunity was to provide information and entertainment – and described ways to make money from it. Cut to the end of 2022: Microsoft, the company founded by Gates, appears as the possible buyer of the company that has best known how to distribute and produce online content, Netflix.
Despite the loud rumors, the deal still looks nebulous. However, one thing is certain: if it shuts down, it could spell the success of Bill Gates’ vision – and also the end of Netflix, at least as we know it today.
Explain: The streaming giant, founded by Reed Hastings in 1997, has had a busy 2022. For the first time in 10 years, the company saw a decline in subscriber numbers. In part, the result of an unfavorable world economic environment, its withdrawal from Russia (due to the war in Ukraine) and increased competition in the sector.
Meanwhile the market (that entity that no one sees, but that everyone fears) has begun to have doubts about the company’s future. He realized that he didn’t just need to grow his subscriber pool with a large investment in content production: he also needed to be healthier financially. This was while Netflix was “burning” a lot of money on content, resulting in a large debt on the balance sheet.
Result? Netflix stock piles up to a nearly 40% decline in 2022. Quite a fall.
Now, the American company can say that “reports of my death are greatly exaggerated”, to paraphrase Mark Twain. After all, Netflix is still the one who best understands the video streaming market and has a solid base of 223 million subscribers worldwide. That’s less than the combined total of Disney’s platforms, yes, but Mickey has multiple users more than once on Disney+/Star+, Hulu, and ESPN+ services to reach the combined 235 million subscriptions.
Never in the history of entertainment has there been something as big and global as Netflix and which has produced so much content.
But, as Bill Gates predicted in 1996, generating money from it can be a challenge. It was then that Netflix decided to resort to something it had always denied it had: advertising. Now, in November, the platform has launched a cheaper plan, at R$18.90 in Brazil, which includes ads. To sell these ads, it partnered with Microsoft.
The buzz now is that this could be the first step in the company responsible for Windows and Office buying Netflix. According to Reuters the two companies are already well aligned and this acquisition would be the next step. Sara?
From a business standpoint, it makes sense: After the recent writedown, Microsoft is worth nearly 14 times the streaming company ($1.77 trillion, versus $128 billion). It still has Xbox, a gaming platform that goes beyond the console, and this year it acquired Activision Blizzard, from the same area of electronic games, for $68.7 billion. Adding video on demand to this ecosystem would be a great move, not to mention that Netflix itself has ventured into the world of mobile gaming.
It would also be the realization of the famous phrase by Bill Gates. Microsoft could finally boast of being the “queen” of internet content – especially in this new phase of the so-called “metaverse”, the universe of virtual reality that replicates real life.
“For me, being good at making games gives us permission to build this next platform, which is essentially the next Internet: embodied presence. Today I play, but I’m not in the game,” explained the current Microsoft CEO. , Satya Nadella, in an interview with the Financial Times following the purchase of Activision Blizzard. “Now we can start dreaming [com isso] through these metaverses: I can literally be in the game, just like I can be in a conference room with you in a meeting. That metaphor and the technology will play out in different contexts.”
So imagine adding all of Netflix’s movies, series, and technology (including the algorithm) to that equation.
Netflix, the new Nokia?
The deal could be a bad fate for Netflix. Of course, being part of a much larger group with a sturdier box would be great. Witness Amazon and Apple, who see streaming as a sideline and can afford to make big, exaggerated plays. But it’s not just this.
Even if it maintains separate management, as with LinkedIn (another company acquired by Microsoft), there would be a culture shock. Even if they are originally technology companies, they are not necessarily universes talking to each other. Would Hastings and Netflix co-CEO Ted Sarandos fit in? Or would they leave the company? This also raises other questions.
There’s more: Microsoft, especially at the time of former CEO and co-founder Steve Ballmer, was aimed much more at business users than at the final consumer. This has given the company a more “square” view of what innovation is.
Finally, the Seattle company doesn’t necessarily have a good acquisitions record. Yes, I’m talking about the purchase of Nokia’s mobile division, in 2014, for $7.2 billion. In 2017, the company buried the deal, along with Windows Phone. To make matters worse, the acquisition of Activision Blizzard could be jeopardized by US antimonopoly regulations, which fear an integration between the gaming market holding company and the Xbox platform unfavorable to the rest of the market.
It is, at the very least, butterflies in the stomach.
Everything now depends on what will happen in Netflix’s revenue diversification. Early moves have not been very promising, with reports from the market that the company would not be able to deliver all the promised advertising in the first weeks of the new advertising platform’s launch. However, the business is still new and it all depends on how the streaming service will be able to attract new subscribers to the plan and more importantly keep their attention focused on the screen for hours on end.
At this point, I’d argue that, on its own initiative, Netflix won’t want to be sold to Microsoft, however interested the Seattle company is. But I wouldn’t bet a cent on it…
From now on, you can follow these and other news on the streaming, entertainment, film and TV markets in this new column from NaTelinha.
It’s worth introducing yourself: I’m Renan Martins Frade and I have 17 years of experience in journalism. Along the way, I coordinated brand communication for Netflix and managed the press relationship for pay channels such as Warner Channel, CNN, Cartoon Network and TNT.
Across the counter, I was the editor of JUDAO.com.br for 12 years, a pioneering pop coverage site in Brazil; I conceived and was editor-in-chief of Filmelier, the first news and curatorship portal for those looking for films on video on demand. On UOL, I have a weekly newsletter with suggestions on what to watch.
Here you’ll find great news about what’s driving this real revolution in how we consume content, and how businesses (from small groups to large) are coping with the accompanying mishap. There will also be behind-the-scenes information, tips on navigating between platforms, and much more.
To the next! In the meantime, here’s an invitation to follow me TwitterInstagram and LinkedIn.
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