Stratechery’s Ben Thompson had a good interview last week with Michael Nathanson, media analyst and co-founder of MoffettNathanson. 

I think this interview is particularly valuable for their discussion around how growth will become more expensive for both Disney+ and Netflix. Specifically, the premise is that content investment is a fixed cost that is assumed to “pay off in customer acquisition over time” in a subscription model, but being forced to localize content that “just doesn’t have the same economies of scale as what people thought”. 

I also think this discussion misses an important point about marginal revenues versus marginal expenses: Disney’s advantage over Netflix is that Disney can create marginal value for streaming subscribers from investing in and marketing original IP, and then monetize them in multiple ways within Disney's ecosystem. But, Netflix has yet to prove it can create marginal value from investing in and marketing its original IP beyond subscription revenues. [1]

Netflix's failures with owned-and-original IP like last summer’s "Jupiter’s Legacy" - the first in its attempt to build out the Millarworld IP it acquired in 2017 - have been within an iterative process towards management’s aspirations to build a Disney-like ecosystem with owned and original content. But, Netflix’s operational failures in animation - reported recently in The Wrap - are also failures to develop original IP. Given that ~60% of all Netflix subscribers watch kids and family content every month, those failures seem more significant. [2]

Together, both problems suggest that co-CEOs Reed Hastings and Ted Sarandos may no longer be the best leaders for a post-pandemic Netflix, especially one that needs to extract more marginal value and marginal revenues from its investment in original IP. The two have proven that, despite their extraordinary success to date, they cannot deliver against a business objective that is increasingly important as growth slows and becomes more expensive.