Netflix, Inc. (NASDAQ:NFLX) CEO, Reed Hastings, desire to start producing content instead of having to sign agreements with film producing studios continues to be a point of concern to some analysts and investors. During an interview on Bloomberg, Intermedia Partners Managing Director, Leo Hindery, questioned Netflix ability to be successful in producing content as compared to how successful it has become on the aspect of distributing the same.
“I think it is a dangerous step when Netflix, Inc. (NASDAQ:NFLX), which is certainly a very capable, very successful company announces that it wants to do a lot of production. It think to its credit, series are more stable than films,” said Mr. Hindery.
CEO Hastings remains focused on Netflix, Inc. (NASDAQ:NFLX) becoming a production unit as a sideshow from the core business of distributing content. Netflix has already been successful on the production of two films thus the ongoing confidence that it can be even more successful on the production side of the business.
Hindery reiterates that content production is a game of numbers and that Netflix should focus its attention on purchasing the best content from all suppliers as it is backed by one of the best cash books in the space.
A constant increase in costs of licensing content could be one of the reasons Netflix, Inc. (NASDAQ:NFLX) would seek to start producing its own content as a way of trying to improve on its profit margins. Netflix model of operation has always been a tough one, in the sense that anytime it builds up an impressive profit margin, studios usually resort to increasing prices for their content on renewal of contracts.
“What is fascinating to me is why organizations that have become very successful distributing content suddenly feel that those talents make them capable of producing content,” said Mr. Hindery.
Licensing fees for content, which enters into billions of dollars may force the giant video streaming company to rethink its mode of operation as the situation is not expected to get any better going forward. The entry of more players into the video streaming space is another challenge that Netflix is set to grapple with going forward as its margins are poised to be affected as a result.
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