Netflix Will 'Burn About a Billion Dollars Cash' in 2016
Company executives explain who they can afford to commit 'shock and awe' spending.
On Tuesday afternoon, Netflix’s top dogs gave their quarterly earnings report and repeatedly harped on how much they love both spending money on (quality) shows and how confident they were about the practice. They’re on pace to “burn about a billion dollars cash” this year.
In the words of Ted Sarandos, Netflix’s Chief Content Officer: “The only reason we can — in [our competitors’ words] — have ‘shock and awe spending’ for a series is that we get shock and awe viewing on that series.”
The Netflix power trio was composed of Reed Hastings, CEO, David Wells, CFO, and Sarandos, who sat together before Re/Code’s Peter Kafka and Morgan Stanley’s Ben Swinburne. At times, they seemed downright hubristic. But, such is the nature of the broadcast: They’re doing it to convince shareholders that their investment will continue to pay off. And, as they reiterated, their original shows have been remarkably successful.
This year, they’re supposedly producing more programming than most networks do in a single year. In the words of Wells:
“We’ve said before that we’re on pace to burn about a billion dollars of cash, mostly on our branded or originals content. That ratio of cash to [Profit & Loss] is about 1:3 to 1:4, and that continues to hold. You see that it’ll run up in a peak in certain quarters if we take delivery of a lot of original content, and then it runs back down. But, I think the 1:3 to 1:4 range of cash to P&L expense will continue to hold. So far, our expectations of use of cash have been about as expected. You see in the letter that we wrote that we’re on pace to use about a billion dollars, or maybe a little more, this year, but we upsized our debt deal last year — about a year ago — so in terms of timing, we’d be looking at later this year, maybe early next year, before we’d need to do anything on the capital side.”
All three of these gentlemen have no problem with commanding people to spend all of their money. It’s a long-term investment, in their eyes, and one that will pay off down the line. In the interim, they’re not taking on much water. And with this year’s lineup of shows, they’re sure to continue their flight of popularity in 2016. Just try not to fly too close to the sun, Mr. Hastings.
Watch the full debriefing here:
Also in the Netflix world today, the arrival of a trailer for the new Pee-wee Herman movie.