A Reality Check in a Changing World

THE NETFLIX MELTDOWN

- Prabal Basu Roy

NETFLIX LOST THE ENTIRE MARKET capitalisation of a State Bank of India in two days - $ 60 billion! It has lost 66 percent of its value in 2022 having fallen to below $100 billion now and is out of the top 100 US companies ranked by market cap.

Such value destruction is quite fundamental and I do not believe the popular theories circulating capture the full import of such an erosion. These theories range from the obvious ones relating to stiff competition, inflation affecting demand, exit from Russia, etc. to more nuanced ones like the books, though legally tenable, not quite reflecting the true cost of employee compensation, Me Too content creation, and the inability to pass on its premium acquisition costs of content and scripts. Many have commented - too late - that the entire media industry could be up for grabs.

All these are fair assessments - the question though is why was this not discounted by the analyst community of such a highly followed stock? One more example, if indeed one was needed, of how poor the analysts are in predicting the future and how futile it is to follow advice when they are generally always behind the curve.

There are two aspects, though, which have not yet appeared in the public domain, and which are, unsurprisingly, age old management plus leadership problems and not unique to the media industry or Netflix.