In the U.S. film and television industry, there's no question that L.A. and New York remain the capitals, but these days, a host of other locations have made serious inroads as production sites. Case in point: New Mexico, where ABQ Studios has been home to a number of popular TV series and films, including Longmire, Breaking Bad, and Marvel's first Avengers movie. And now, it'll be a home to Netflix (NASDAQ:NFLX) -- the company is poised to buy ABQ for an undisclosed sum.
In this segment from MarketFoolery, host Chris Hill and senior analyst Jim Mueller weigh in on the deal; reflect on the growth of Netflix's production and operational footprint in the U.S., Europe, and elsewhere; and consider some trends in the entertainment industry.
A full transcript follows the video.
This video was recorded on Oct. 9, 2018.
Chris Hill: Shares of Netflix up a little bit this morning on the news that Netflix is buying ABQ Studios, ABQ short for Albuquerque, based in New Mexico. ABQ Studios home to several television shows, most notably Better Call Saul. I didn't see a price tag associated with this. I'm assuming they didn't have to reveal that.
Jim Mueller: Nothing's been announced. And it's not even a done deal yet. The people from Albuquerque and the state of New Mexico are talking as if it is a done deal.
Hill: I was going to say, wasn't there an event with the governor of New Mexico, the mayor, that sort of thing?
Mueller: For one thing, since the city of Albuquerque is contributing some funds, the City Council has to approve the deal. That hasn't quite happened yet. But, yeah, it looks like a nice deal for Netflix. They have Albuquerque Studios, which has been for sale for a few years now. It has nine sound stages, production offices, a backlot. Has been the site for some filmings, such as Godless, and Longmire, The Ballad of Buster Scruggs, which I actually want to see.
Hill: That's the new Coen Brothers movie, right?
Mueller: That's the new Coen Brothers. Even the Avengers 2012 was filmed at ABQ.
Hill: So, this seems to be right in line with the move that Netflix had a little while ago, moving their headquarters to Los Angeles. I think if you're anyone else in the movie business, you have to be viewing this news with a little bit of trepidation.
Mueller: Well, if you're in the Hollywood movie business. But television and film are becoming businesses all over the place. New Mexico had $500 million spent there last year. Georgia has had over $2 billion dollars spent in filming in Georgia. It's big business elsewhere. States are seeing this opportunity and offering incentives, so people are going all over the place. The U.K., for instance, is a big place internationally.
What I think this plays into, not just the headquarters move with Netflix, but some of the announcements they've had out of Europe. They have two offices already in Amsterdam and London. They recently announced a new office in Paris, and then a studio outside of Madrid. Now, they just recently announced a new office in Madrid, as well. I think Netflix is making a serious play to secure places to do its original programming and filming around the world and be able to save on costs in the long run by doing so.
Hill: It saves on costs and it's also one more carrot that they can offer to show runners. We are starting to see, certainly, the other major studios and the other television networks maybe not push back so much, but basically, their selling points to a show runner is, "Hey, look, we've only got a few shows on our network, and we want yours to be one of them. We're going to promote it in a way." Netflix, they're doing a fine job, but Netflix is basically going to give you a day's worth of promotion.
Are you surprised at all at the growth? Not so much in the business and the stock, but in the growth of the production side of things? This Albuquerque, this will get finalized. But the European operations?
Mueller: In one way, yes, because, at least here in America, we've been trained that the big film locations are Los Angeles and New York. But Netflix is showing that people know how to tell stories, write good stories, and a good number of them are not here in the U.S. So I think they're taking advantage of that and, as part of their global expansion, finding a lot of those international producers and storytellers.
Hill: Kudos to New Mexico! When I was at SXSW earlier this year, in the trade show, there were a number of states and municipalities that had set up booths. A bunch of them were making the pitch of, "Hey, here's why it's good to do business in Tulsa, Oklahoma." "Here's why you should come to the greater Richmond, Virginia area." That sort of thing. And for a bunch of them, part of their pitch was to the entertainment industry. I talked to the guy from, I'm going to get the name wrong, but it was from Florida and it was an entertainment wing of the state. And basically, that guy was just sad. I was like, "Are movies not being filmed in Florida?" And he basically said, "Georgia is just crushing the rest of us. Georgia has rolled out so many incentives that all these big studios are just going to Georgia."
Mueller: They went from $60 million spent in Georgia in 2007, I think, was the stat, to $2.7 billion in last year, fiscal '17. That's quite a bit of growth. Yeah, this guy had it right.
Chris Hill has no position in any of the stocks mentioned. Jim Mueller, CFA owns shares of Netflix and has the following options: long January 2019 $110 calls on Netflix. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.