Since the dawn of streaming video roughly 15 years ago, the media landscape has undergone a paradigm shift. Viewers are no longer saddled with "appointment" television and movies, having embraced online content delivery. Netflix (NFLX -0.63%) is the principal architect of that evolution, popularizing streaming video and forever changing the trajectory of the media business.
In fact, billionaire Barry Diller goes so far as to call Netflix an "evil genius," suggesting the company changed the rules and is best positioned to survive the current Hollywood strikes and thrive for years to come.
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A media mogul
Barry Diller may not be a household name, but he is one of the world's most successful media executives. Diller is credited with numerous innovations across the television landscape, including creating the made-for-TV movie, the miniseries, and even the movie of the week.
Diller also served as CEO of Paramount and had a role in creating and launching the Fox Broadcasting Company -- now owned by Walt Disney -- in 1986, releasing a host of innovative and fan-favorite programming, including The Simpsons and Married with Children. He went on to assemble a vast multimedia empire of successful television, cable, and online entertainment sites that have made him a billionaire several times over.
So, when it comes to the media industry, Diller speaks from a position of experience.
Evil genius
In a far-reaching conversation on the podcast On with Kara Swisher on Aug. 31, the discussion inevitably turned to the ongoing Screen Actors Guild (SAG) and Writers Guild of America (WGA) strikes in Hollywood and their potential impact on the movie and television industries.
In short, Diller posited that if the strikes continue, the lack of new content will eventually cause a mass exodus among streaming subscribers -- for everyone but Netflix. In fact, he made this stunning proclamation: "The strike does one thing and one thing only ... It strengthens Netflix and weakens [legacy media companies]." Diller even suggested that the evolution of streaming was at the heart of the current writer and actor strikes.
The reaction by rivals to Netflix's continuing success has been pretty consistent:
- Legacy media companies felt compelled to develop streaming services to rival Netflix.
- Studios spent heavily to be competitive.
- Media companies pulled content that was generating revenue elsewhere to populate their new services.
- This, in turn, weakened their existing broadcast television and cable offerings, causing profits to suffer.
This is the "evil genius" that Diller speaks of at Netflix.
A great admirer
That's not to say Diller isn't a big fan of Netflix. He clarified that while he initially used the term "evil genius" rather flippantly, it may have given the wrong impression as he's an admirer of the company.
When asked if he was a buyer of Netflix stock, Diller made the case for why the company was so successful. He said the folks at Netflix were "really smart people going about their business with single-minded conviction, courage, consistency" and he gives them "high marks on every level."
Diller admires Netflix "because they were so effective [it caused] a series of unintended consequences... It's astounding." That's a pretty strong investing thesis.
The competitive advantage
Having a head start of over a decade has bestowed a significant competitive advantage on Netflix. The company had a content library worth $32.7 billion to close out the second quarter, giving subscribers plenty to watch, even as the strikes in Hollywood drag on.
Analysts' consensus estimates suggest Netflix is on track to generate revenue of roughly $37 billion this year and earnings per share of nearly $12, and profits are expected to accelerate by 30% next year. By contrast, almost every other streaming service is operating at a loss.
That's a compelling reason to own Netflix stock.
