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After the recent drop in share prices, and a couple of posts in this sub, I feel like people may have a misunderstanding about what makes Netflix special. Or better (I hope): I may be able to offer a differentiated opinion.
So one thing people go for first when thinking of Netflix is pointing out either (i) Netflix’s content has been on a decline for the past year or so and that can really hurt their moat (or at least erode their competitive advantage), or (ii) content is fickle so no matter (i) holds or not Netflix never had a moat to begin with. For what it’s worth I’m in agreement of (ii), but I also think that’s what makes Netflix special. Their value proposition, unlike most streaming services, is **not** content provision, but content discovery.
Let me say more. There are two reasons content or IPs are not things that can ground a long term investment thesis. First, you have piracy. Any content can be pirated. So if a streaming service is built on content, it is really built on friction reduction, not the content itself. This will be important later.
Second, you have the nature of creating content and monetizing IPs. It is just not predictable or easy. Even with the best IP and the best talents you can lots of flops. There is no sustainable structural advantage to be had in the long run.
But Netflix’s success is precisely because, for the reasons above, content is NOT a moat. Of course, any streaming service will have different subscribers, but I want you to introspection on your experience of using Netflix vs using say HBO. My bet is that, when you watch HBO, you open the app with a show in mind. You want to watch house of the dragon, so you open HBO. But with Netflix, my bet is that in most cases you open the app to find something to watch.
This is significant because with intention based watching like HBO. Opening and paying for the app is competing with piracy. (I want to watch HOTD, and I can either use HBO or pirate it.) But with discovery based, there is no good way to discover content on piracy site. You can see this in the number since **Netflix is consistently the last streaming service one cancels**. It would not make sense if people make cancellation decision on content quality. Instead, Netflix is the least replaceable because it does not primarily provide content, which you can get elsewhere, it is platform to keep you engaged when you don’t know what to watch.
Similarly, Netflix is the only streaming service that does not rely on creativity for its existence. (It still does obviously, but not to the same extent.) To have a good discovery engine, you need a huge **quantity** of shows and movies without a lot of variety. Not one or two blockbuster. Again, this show up in the number: if I remember correctly, no show accounts for more than 2% of watch time on Netflix.
To give an interim summary: **Netflix does not have a content moat, but it never did. Its differentiated value prop is not content per se, but discovery.**
So this leaves the question: is this differentiated value prop sustainable and defensible as a moat. I think this really comes down to a different question. Cast in this way, it should be obvious that what Netflix provides is more similar to YouTube and TikTok than hbo or Disney, if not in content, in the actual value it captures. So the question of whether Netflix has a moat is really: **will people still want to discover produced content or will they be satisfied with user contributed content and/or slop?**
Personally, I think the answer is clear yes. And this is also a perspective that makes it very clear that nothing about the fundamentals of Netflix has changed—its recent drop in content quality and competition and acquisition are all imo noise.