This week I finished watching season one of Top Boy, the Channel 4 and now Netflix drama.
It’s only four episodes, but packs a hefty punch.
One of its most powerful images is of a couple of the main characters murdering and burying a rival on a hill in east London, while the skyscrapers of the City of London light up the background.
It’s a stark and deliberate reminder that while all the money piles up in that part of town, the “postcode wars” are claiming lives in the shadow of the offices.
It’s an image that won’t leave you in a hurry.
Anyway, why am I talking about Top Boy, and setting a bleak tone for this article?
How do you link Top Boy and a gloomy economic outlook? And I’m not just talking about the Fed and the feds.
Let me tell you.
Drecession
Season one was originally produced by Channel 4, but I watched it on Netflix.
The reason I watched it now is because of all the hype that’s been generated by the latest (third) season.
After a six-year hibernation, it was rejuvenated by, of all people, Drake. In case you aren’t a fan of US hip-hop, Drake is one of the biggest names in the music industry these days.
It turns out he was a massive fan of the show and so he offered to bankroll a new season.
And who did he turn to, to bring his vision to life? Netflix, of course.
Netflix, which lost over 100,000 subscribers in the US when it tried to raise prices.
Which saw subscriber growth fall by over 70% the last time it provided those figures.
That burns through cash as impressively as WeWork or Tesla ($15 billion on content alone in 2019, apparently).
That is about to face serious competition for the first time.
Netflix is a tough one, because it’s such a brilliant product. Most of your favourite TV shows, on demand, in high definition. Under a tenner a month, and so simple.
It has revolutionised the way that so many people engage with film and television.
It’s quite hard to put your finger on what exactly it is though. For the last decade, it has been the Blockbuster-killer, the streaming pioneer, and the future content monopoly.
Except, well… quite a lot of that content belongs to someone else, and its owners are all about to pull their shows from Netflix in order to start their own streaming platforms. Disney, Comcast, Apple, and AT&T.
So while it certainly pioneered online streaming as a way of watching TV, it doesn’t have exclusive rights to that idea. It has no defensive moat, as Warren Buffett would say.
And while it definitely killed and replaced Blockbuster, it’s actually the new Blockbuster, and we know what happened to Blockbuster. Somewhere out there someone or something is lurking, hoping to steal Netflix’s crown. That’s just how it goes, success attracts competition. And competition is hotting up.
Netflix’s two most successful shows are Friends and The Office (sadly the US clone rather than the superior British original).
Well neither of those belong to Netflix, and will be whisked away by their owners when they start their own streaming services over the next year or two.
As I see it, Netflix is going to become, rather than a streaming monopoly, just another content provider. And yes, it does have some brilliant content, but valuing it as a content provider rather than as some incredible tech growth stock is a bit of a change.
And I’m by no means the first one to spot these things.
In fact, Netflix’s share price has fallen fast and far from its latest peaks from this spring and last summer.
For those who believe in such things, its share price has broken through its upward sloping “support line”, a technical term for a line off which the price always bounces upward.
After the previous fall, the price did bounce back up off that line. This time, it has crashed through and kept going.
And because it’s Netflix, one of the FAANGs and the American stockmarket darlings, it does carry quite a bit of symbolism.
It’s not just any company hitting trouble and falling in price, it’s one of the US’s best performing global companies, which only a year or two ago was going to conquer the world and put everyone else out of business.
The higher the pedestal…
So that’s how Top Boy might be linked to the next recession.
Its revival highlights Netflix’s ravenous appetite for expensive content. In its hunger, margins, revenues and return on investment all seem to have been pushed further and further into the future, and suddenly investors are getting impatient.
If Netflix goes, it could pull the whole House of Cards down with it.
That’s all for today,
Kit Winder
Investment Research Analyst, Southbank Investment Research
Category: Market updates