Netflix has 'the best long-term business model' because of its relationship with consumers: Chamath Palihapitiya

  • Netflix has a huge advantage in the original content space due to its strong relationship with consumers, Chamath Palihapitiya says.
  • Subscribers have a relationship with Netflix "where they understand the data that's being collected," Palihapitiya says.

Streaming giant Netflix has a huge advantage in the original content space due to its strong relationship with consumers, tech venture capitalist Chamath Palihapitiya said Wednesday.

Netflix has shown "that having a direct relationship with your customer — where your customer and your consumer are the same — is probably the best long-term business model," the former Facebook executive said in an interview on CNBC's "Squawk Box."

Subscribers have a relationship with Netflix "where they understand the data that's being collected," Palihapitiya said.

Netflix, with a market value of nearly $142 billion, has seen its share prices more than double during the past 12 months. Netflix added far more users than expected in the first quarter as it pushed out heavy investments in original content to drive subscriptions.

The company, facing increasing competition from the likes of Amazon and Disney, said it expects to have $7.5 billion to $8 billion in content expenses this year, in line with previous estimates.

Some on Wall Street have expressed concern about Netflix's strategy to splurge heavily on new content.

But Palihapitiya, who served in various management roles at Facebook during his four years there, including vice president of user growth, said he expects that money is being used efficiently to create content in various ways. He said that includes keeping existing subscribers, acquiring new consumers as well as seeding and launching completely new markets entirely.

"When you segregate that out, they all have different values to Netflix," Palihapitiya said. "That's why you end up with numbers that may not seem obvious on the surface. But underneath I bet you there's a strong discipline and science around how they do that capital allocation."

Sign Up for Our Newsletter Morning Squawk

CNBC's before the bell news roundup
Get this delivered to your inbox, and more info about about our products and services.
By signing up for newsletters, you are agreeing to our Terms of Use and Privacy Policy.