Because Netflix was the first easy-access streaming company, it incorporated itself into the lives of many in the United States and even globally. It set the stage for the streaming world, but people are now asking if it will continue to be the leader of this market.
With over 100 million subscribers by Paul R. La Monica’s count for CNN, it is shocking Netflix is billions of dollars in debt. While this might alarm some, the company assumes that they will continue to succeed in the long run.
However, while the company and investors are confident in the company, it will be difficult for Netflix to climb out of this mass of debt.
While Netflix is still the main dominator in streaming, there are many competitors on the rise. Amazon and Hulu are expanding their streaming services and are quickly gaining support from their users.
Netflix is trying to keep up with their competitors by providing their specific brand of Netflix Original series.
More companies are realizing streaming is becoming more important for viewers and more profitable for themselves.
Because of this, Disney is branching off to create their own streaming service and is starting to pull their fan-favorites from Netflix. This will draw some people away from Netflix, as more streaming options open up to audiences.
Netflix knows it has to do something to keep their viewership, so they are increasing their spending. They fail, though, to consider the financial aspects of this decision.
They continuously spend their borrowed money on more Netflix Originals, thinking with an increase in original series, the company does not have to pay other production companies for their shows and movies.
Netflix is banking on their original series to be hits, but with the combined debt and new competition, Netflix will fail to bring in enough revenue to cover the costs of producing their own shows.
Despite claims of being Netflix Originals, some shows, like “Orange is the New Black” and “House of Cards” are actually produced by other studios. According to David Ng, a writer for the Los Angeles Times, Netflix pays “undisclosed licensing fees for the exclusive rights to stream these shows.”
As the production fees for the shows are expected to go up, Netflix has to sacrifice a lot of financial resources in order to keep these hits. This allows even more money to slip through their fingers, making it nearly impossible to get out of debt.
The main concern is whether Netflix will survive these huge costs or let their viewers down.
The company is not only spending and borrowing money, but it is refusing to focus on paying the money back, which is an issue they are putting off for the future.
Instead of dealing with the problem now, while it is still fairly manageable, they are willing to go all in, in the hopes they will lose nothing.
Instead, Netflix needs to recognize and act on the problem of their growing debt.
By trying to stand out in the world of streaming, Ng says Netflix has acquired $20.54 billion with the goal to produce more Netflix Originals. They seem to have no plan to make the money back, but they do intend to stay in debt for a long time.
Waiting for their debt to level off will only make it worse, while there are plenty of easy long-term solutions.
Instead of ignoring the debt, Netflix could add commercials, and they could also offer an exclusive deal allowing viewers to pay more for no commercials, which is something Hulu does.
Netflix is the main source of streaming in the U.S. and most viewers would rather pay more in their monthly fees than to see it go under.
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Diving deeper into debt: Netflix ignores financial problems
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