Netflix (NFLX +2.79%) has been one of the best-performing stocks of the century as the company transformed video entertainment.
The company has sometimes been willing to disrupt itself when it makes sense, like when it pivoted from a DVD-by-mail operation to pioneering the streaming model. However, to investors, the company may be as well known for saying no to new opportunities, as it has long been committed to a simple business model.
For example, co-founder and former CEO Reed Hastings long rejected the idea of adding a lower-cost advertising-supported tier, saying it would be too complicated to offer both options to customers. Eventually, he came around to the idea in 2022 after the company had reported two straight quarters of subscriber declines, and after ad-supported tiers had been embraced by most of its streaming competitors.
Netflix also resisted screening its movies in theaters, which it typically does only to qualify for awards. And it has also begun to experiment with live events recently.
Similarly, the company has been less adept than its peers at monetizing its content beyond the small screen. But that could be about to change: Netflix just signed deals with Hasbro and Mattel to make a wide range of toys and consumer products based on its new blockbuster, KPop Demon Hunters. Let's take a look at two reasons why this could be huge.
KPop Demon Hunters is a mega-hit
It's hard to overstate the cultural juggernaut that KPop Demon Hunters has become. It's now the most viewed movie ever on Netflix, and it comes with the kinds of catchy songs, styles, and other touchstones that have previously made franchises like Frozen such massive cash cows for companies like Disney.
This is the first time Netflix has harnessed this kind of potential in children's entertainment, and it could lead to a new revenue stream in the billions of dollars.
By comparison, Disney is believed to have generated several billion dollars from Frozen merchandise, not to mention other franchises.
NASDAQ: NFLX
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This could get the flywheel spinning
Disney has prospered in part because of the flywheel model in its business. A successful movie like Frozen or a new Star Wars release can then be monetized through merchandise sales, live experiences in its theme parks and elsewhere, and other products, keeping fans enmeshed in the Disney ecosystem, sometimes for life.
Netflix hasn't had much success building similar flywheels, but KPop Demon Hunters gives it its best opportunity yet. A sing-along version of the movie topped the theatrical box office in August with ticket sales of $18 million, even though it was available simultaneously on Netflix, showing the potential for the streamer to better monetize its content through movie theater showings.
Whatever happens, Netflix should get better at monetizing its intellectual properties, and KPop Demon Hunters could become the type of monster cash cow for Netflix that Frozen has been for Disney.
