Netflix is growing faster than you can say "troll the respawn, Jeremy." With the creation of award-winning original content, the company has been on a spending spree, borrowing nearly $20 billion ($15 billion) in both long and short-term debt. According to the Los Angeles Times, Netflix's remarkable success comes with equally momentous risk; to slow down could mean drowning in debt.
Netflix's spending reflects the intense competition they are up against from streaming competitors and peak TV. With subscriptions as their primary source of revenue, creating content that people feel like they have to see is crucial to the company's success. They show no signs of slowing down their spending: Netflix expects to spend at least $6 billion ($4.5 billion) on creating their own projects this year. They have produced 50 original shows which have amassed 91 Emmy Award nominations — second only to HBO. It gives them cred: that new Jennifer Aniston and Reese Witherspoon show is being shopped exclusively to premium channels and streaming services. The Netflix game is one that big stars want to be in.
On the plus side, the 20-year-old company boasts a worldwide subscriber base of 104 million. That is a 25% increase from 2016, and nearly quadruple the number of subscribers they had five years ago. That number represents a whole lot of people who are into late-night binge watching and, Netflix hopes, is only scratching the surface of streaming TV watchers.
Their budgetary concerns stem from the fact that currently some of the most popular shows associated with Netflix are not actually produced by the company. Orange Is the New Black, The Crown, and House of Cards are all produced by outside companies, making them a source of both success and a huge expense for Netflix. The exclusive rights to stream these types of shows is making it more lucrative for Netflix to own the rights to their streaming content rather than continuing to rent it.
To decrease those costs, Netflix is shifting to invest money into self-produced shows like Stranger Things. They are hoping that as much as 50% of their platform can be made up of shows Netflix commissions and owns, according to a report from the Los Angeles Times. "That's a lot of capital up front, and then you get a payout over many years," Chief Executive Reed Hastings said to the Times. "The irony is the faster that we grow and the faster we grow the owned originals, the more drawn on free cash flow that we'll be."
Meanwhile, as Netflix continues to outspend their competitors, many are speculating about what types of projects Netflix should invest in. Should they focus their efforts on big-budget blockbuster movies or original series? For now, Netflix is ahead of the curve. The question is: what will it take keep them there — and can they afford it?
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