After the stock market closed yesterday Netflix announced more subscriber growth than analysts anticipated and the company’s stock is surging — up 14 percent today. One result? Netflix passed CBS in market capitalization. It seems like a watershed moment for how rapidly media is evolving. CBS was founded in 1927 and has long been a foundational franchise of American media. Netflix was founded in 1997 as a DVD by mail company, but only recently — as it realized the DVD by mail company model was dying — pivoted to become a streaming online property. The growth since Netflix entered the streaming market has been nothing short of extraordinary.
On September 28th, 2012, less than three years ago Netflix had a market capitalization of under three billion dollars. The stock was trading for right at $54 dollars a share. Now, less than three years later, its market cap exceeds thirty billion and its stock price is over $540 a share. It’s really more instructive to think of Netflix as a new company, the one that was born as a streaming service less than three years ago, than the antiquated DVD by mail company founded all the way back in 1997.
Is Netflix overvalued? Perhaps. Maybe it’s business model won’t continue to grow as rapidly as it has been. Maybe foreign viewers won’t love its offerings, maybe programming will prove too expensive and profits will be too slim. Maybe all the money Netflix is spending on original programming won’t pan out and there won’t be any must see shows on the service. But what if none of this is true and Netflix is still just getting started? What if under three years ago Netflix changed everything with an adroit leap from one dying business to a new business that barely existed?
Certainly the company stole a march on competitors who are all still racing to catch up — HBO and CBS have announced their own streaming subscription services in recent months. Netflix is poised to spend nearly $500 million on original programming this year. Many of you reading this piece right now have watched, “House of Cards,” or “Orange Is the New Black,” the two most successful original programs that you can only receive on Netflix.
My family signed up for Netflix when we got an XBox One for our oldest son. It was easy to stream the service through the XBox One and lots of you had been telling me that I had to watch “House of Cards,” because I’d love it. So we took the plunge for a $9 a month subscription. I figured worst case scenario $9 was cheap as hell for a good television show, less than a movie would cost one person. And y’all were right about “House of Cards.” I couldn’t stop watching the show, it was fantastic. Every episode available all at once? And the autostart function that kept me up late at night for just one more episode? What an invention. My wife rapidly devoured “Orange Is the New Black.” — I read the book, but haven’t watched the series yet — and we both feell in love with Netflix.
But something else pretty fascinating happened. My kids discovered Netflix too.
I remember how stunned I was when my three year old grabbed an iPad and pulled up the Netflix app. He couldn’t even read, but he knew Netflix’s logo. And pretty quickly he knew how to search on Netflix and pull up his favorite shows — damn you Caillou!– without me even helping him.
This past fall, after our third son was born, I took the two older boys to Disneyland to get them out of the house and give their mom a weekend with just the baby. (Yeah, a real relaxing time for her, just a newborn baby to worry about. I would have gone crazy if I had to take care of a newborn by myself for even a single day.). The day after Disneyland we were all tired and the boys were irritable so dad broke out the iPads and told both boys they could pick their favorite show to watch. They put on their headphones and scrolled through the offerings for kids. My youngest son got logged on first and pulled up “Max and Ruby,” and then my second son couldn’t get “Spy Kids” to start. Which caused a near brawl. (As any parent of young boys knows, just about everything causes a near brawl). Turns out my wife was breastfeeding while watching “Breaking Bad” back home in Nashville and you can’t have three simultaneous videos all playing at the same time on different devices without paying extra.
Netflix is so popular in my home that as the boys grow up we may have to spring for five simultaneous plays.
But it isn’t just Netflix that was eye-opening when seen through the eyes of my kids, it’s the concept of on demand itself.
Like many of you we have a bunch of media subscriptions in our house — we subscribe to Comcast XFinity, Netflix, and Amazon Prime. We also subscribe to HBO, Showtime, and Cinemax. I travel quite a bit so I watch a decent amount of streaming television on my laptop or iPhone.
On that same trip to Los Angeles with my boys, we put the television on to watch Sprout in the hotel room. Occasionally we watch Sprout on live television at home, but usually we pull up on demand cartoons on Sprout. My kids believe that any show ever made should be available to them to watch at the exact moment they want to watch it. They only want to watch their favorite shows.
The result of watching TV without a DVR in a hotel room?
My oldest son turned to me and said, “Daddy, what are these? Why isn’t our show on?”
At first I was confused by what he was asking, but eventually it dawned on me — he didn’t know what commercials were.
Having kids is eye opening and extraordinary for millions of reasons, but it’s particularly interesting because you start to see the world through their own eyes too. I’m a dinosaur a 36 year old dad who still occasionally watches television commercials. My boys are growing up in an era when they get to watch exactly what they want when they want to watch it. They aren’t like me or you. When we missed G.I. Joe at four in the afternoon, we were upset. It was a disaster. Who had any idea whether the Cobra Commander might win that day? My boys program their own media universe already. And they’re just seven and four years old.
You think they’re ever going to sit around and wait for media companies to bring them their shows at a prescribed time and then sit down for a half hour or an hour and watch commercials?
They’re the Netflix generation — they want it their way and they want it now. Without any interruptions.
That’s why Netflix passing CBS in market capitalizations is just a harbinger of the massive changes that have already come and still loom on the media horizon. Things are changing awfully quickly out there.
It’s a brave new media world.