Why Netflix $450M ‘Knives Out’ gambit is becoming routine as streaming platforms ‘feed the beast’

İstanbul, Turkey - July 1 2018: Woman using tablet computer and looking an online streaming platform. The tablet pc is an iPad Air 2, developed by Apple Inc.

Alexandra Canal·Producer-Sun, April 4, 2021, 2:04 PM

Netflix (NFLX) is keeping up with tradition and spending big money on new content.

Late last week, several reports cited the streamer spending upwards of $450 million to secure the rights of the next two sequels for “Knives Out” — one of 2019’s biggest its. If confirmed, the deal would be one of the largest movie streamer deals in history.

The first film cost $40 million to make, and brought in over $311 million globally at the box office. Director, writer and producer Rian Johnson, as well as star Daniel Craig, are both signed on to return for the next installments.

“It’s not a question of spending — they have to,” Santosh Rao, head of research at Manhattan Venture Partners, told Yahoo Finance in an interview.

He explained that competitors from Amazon Prime Video (AMZN) to Disney Plus (DIS) are “neck and neck” with Netflix when it comes to aggressively pursuing content and attracting new subscribers.

“The name of the game is to have content — good content and a continuous stream of content — to keep the people in your ecosystem,” Rao added.

On Friday, Netflix’s stock closed over 3% higher — a solid gain but roughly in line with its usual range. It raises the question of whether investors were impressed with the content splurge.

“I think it’s just par for the course,” Rao surmised, saying that the new deal “is nothing exceptional.

He added: This is something the platform needed to do and now they’re doing it, so it’s nothing out of line or out of sync with their strategy,” he said. The sequels’ $450 million price tag won’t break the bank as it’s just “a drop in the bucket” compared to what the streamer plans to spend this year.

“People expect good content from Netflix and it has to feed the beast,” he added.

The ‘poster child’ for big spending

Netflix has committed to spending a whopping $19 billion on just content alone in 2021

At the moment, Netflix is the company to beat with over 203 million global subscribers, and expectations to be free cash flow positive as early as this year.

Furthermore, the streamer has committed to spending a whopping $19 billion on just content alone in 2021, underscoring its commitment to engaging a wide breadth of consumers. The platform previously revealed it would drop an original film every week in 2021.

“Netflix is going all out, [but] this is right in line with their strategy — providing content and competing head on with all of the other [streamers],” Rao said.

According to Deadline, Netflix outbid both Apple (AAPL) and Amazon for the rights to the “Knives Out” sequels — a prime example of how competitive the streaming landscape has become.

“At the end of the day, Netflix is still a very popular poster child for streaming series,” Rao said, adding that competitor Disney+, although forging ahead with a projection to hit 260 million subscribers by 2024, “does not have a good library yet.”

“[Disney is] building, but their content is more tailored to younger audiences. Overall, Netflix appeals to a broad demographic — something for adults, young kids, international and localized content — they are much more aggressive and well-positioned at this point compared to others,” the analyst added.

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