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Column: Why Neflix won't take over the world at $7.99 a month

MINYANVILLE

MINYANVILLE Credit: MINYANVILLE

Keep it simple.

That’s good advice in life, and it’s great advice for technology investors. The more novel a thing is, the less we can predict about its future – so it’s important that we stick tothe basics. What is a company selling? What price can it get? What are its costs?

Netflix sells used video content. It repackages movies that have left the theater, and television shows that have concluded their season. The video-on-demand service charges $7.99/month per subscriber, and pays somewhere in the neighborhood of $6/month per viewer for content, plus any and all expenses.

The company is widely seen as a threat to cable TV, and the success of original content like the Emmy Award-winning House of Cards would seem to be proof that the challenge is real. However, definition and price work together. Original content cannot be had for $6/month per viewer, and in order to turn a profit, Netflix must resell content that it cannot afford to produce on its own. That makes it a used video seller.

Full story at Minyanville.

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