FinTekNeeks

From Minimalism To Tech

Amazon Advertising, Netflix Earnings

Posted in Tech on January 22nd, 2018

Amazon announced that they are getting into the advertising game. Already a crowded space, what can Amazon offer for advertisers to divert their spend from Google, Facebook, Snapchat, Instagram, and other platforms? From my experience with Amazon website, the product recommendations have not been impressive. I do not need more batteries, when I just bought some batteries that I need.

Optimism for Netflix is High

I previously wrote about Netflix and reasons for being optimistic back in March 2017. As earnings will be announced today, on January 22, 2018 after-hours, we try not to guess what the stock price will do after earnings. Anticipation for positive earnings is high as the stock price is at all time highs. There has been cases where Netflix surprises with growth, and the stock jumps after-hours. But, I have seen the stock price retrace the gap up in the following days after earnings announcement. The market can also punish if there are fears of no growth, as the stock price has been ramping up in anticipation from its previous earnings report.

So, why did I write about Amazon and Netflix in the same article? One thought has occurred to me. This may not be an original as I’m sure some others have thought about it. I do not recall anyone ever writing about it, however. Netflix is the greatest platform for delivering entertainment content today. They have great software engineers that can provide seamless streaming content, with minimal interruptions and high quality (most of the time). Other streaming services have been lacking, where they were unable to scale to provide high quality uninterrupted streaming video. Netflix excels at the experience where other platforms are still trying to keep up. I can only attest to the U.S. content, but I have to assume the experience is the same worldwide with broadband access.

To divert the Netflix experience with advertising would be disastrous, in my opinion. But, let us consider subtle advertising. I’m sure the industry has a term for that but I don’t know it. There has been cases where shows and have deliberately advertised using product placement. If you have seen Michael Bay movies, I am sure you have been bombarded with brands, logos, and obvious products. Also, many shows have added scenes to showcase advertisers. These shows had scenes where characters drove specific cars and highlighted specific features.

Hypothetical Scenario

With Netflix investing heavily into original content, there are other opportunities for advertisers besides the above routes. Currently, I’ve read about a technology that can place certain billboards or graphics in scenes after post-production of shows and movies. I am not certain if the technology requires a “green screen.” I know that the technology is there to project graphics on phones or computer screens, after the scene has been shot. However, I am sure technology will be developed to project graphics on any surface of scenes. Imagine a billboard in the background that changes depending upon the viewer and the show. Or a product that is projected into the refrigerator, as it is opened by a character grabbing a drink. If I am watching a 1990’s show, I can see background ads that are styled in that era.

I propose that Netflix will be able to offer advertisers targeted placement of ads or products in popular shows. These can be geographically focused. With analytics information, this will offer a powerful tool for advertisers, which should be offered at a premium. This may become significant amount of revenue as Netflix continues to grow in original content. If the technology is patented or exclusive to Netflix, Netflix may even have more leverage to negotiate deals with content producers. This will differentiate as more competition comes online for streaming content.

I am not saying Netflix will do this or even have plans to do this. It is just a hypothetical exercise on answering the question, “Where can Netflix go to add growth in revenue?” The current stock price seems to be very high based on their P/E. For value investors, this is not a value stock. For trend followers, this is clearly on a trend so far. I wish Netflix all the best.

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