Netflix and chill comes at a cost, for the company itself and to subscribers, and it is no secret that the movie streaming service has borrowed a ton of money to finance its costly programming.
Over the last few years, Netflix has borrowed over $20 billion to support its content and it will continue to borrow money that will be invested into more original movies and series. Due to the unexpected popularity of Netflix originals such as “Luke Cage”, “Stranger Things”, and “13 Reasons Why”, which became hits almost instantaneously, Netflix has plans to make fifty percent of their content original.
According to Netflix’s CEO Reed Hasting, in order to reach that goal, the video streaming service will continue its spending habits. In an article published to “Vulture”, an online news site, Hasting stated Netflix will increase its spending a lot.
“As we grow the membership base, we want to grow the content budget. This of course requires a lot of money, but fortunately, borrowing billions of dollars is not an issue, so long as Netflix continues to grow in popularity and in subscribers,” said Hasting.
The problem then, is that Netflix, in recent years has begun to see competition from other online streaming sources such as Hulu and Amazon Prime who offer similar services.
According to CNBC, Netflix plans to spend an additional $6 billion on content which is potentially good for the company because the money will be used to produce more original programming. However, analyst for Wedbush Securities, Michael Pachers, expressed to CNBC that he believes Amazon can outlast Netflix easily. He also said that it was foolish for Wall Street to continue to overlook Netflix’s excessive spending, which will leave the company with little to no value in the future.
According to CNBC, in July of 2016, Amazon announced that it also had plans to double its video contact over the sound half of the year and it would triple its original content budget as well. Where Netflix succeeds is in subscriber growth but Pachter brought up a valid point. He questioned whether Netflix could “successfully build a content library that will justify its high level of spending.”
In theory, they’re spending a lot, to make a lot back but, if the content fails to attract new subscribers, Netflix may face similar problems as in past years resulting in decreases in membership. The difference this time is that if Netflix loses members now, competitors are ready to pick them up.
“They’re making a big bet they’re better than Hulu – and Amazon and FX and USA Network and AMC – at developing this stuff, and yet they completely lack the internal expertise to compete.” Pachter stated to CNBC.
It is safe to say that Netflix can continue to make large investments if they can continue to win over customers with good programming but if membership drops, Netflix may find itself in a hole of debt. But one thing that cannot be denied is Netflix’s willingness to take risk and invest in itself.
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Netflix and Debt Anyone?
October 24, 2017
Netflix and Debt Anyone?
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