Netflix blasted past predictions in the first business quarter of 2018. The entertainment streaming monolith reported during its Monday earnings calls that it had added two million American subscribers when analysts predicted it would add only add 1.45 million. The company’s strong growth and its pervasiveness in popular culture with original shows like Stranger Things and Orange is the New Black have led people to ask: Will Netflix knock traditional media companies out of the game entirely?
Lorne Brown, the CEO of the ad tech firm Operative, went on Cheddar’s Morning Bell to discuss that while he believes what Netflix has done so far is incredible, the company might face some trouble in the future due its risky investments.
“They invested a lot in content, that is paying off… they’ve been able to grow at a rate that no one thought was possible,” he says. “It’s smart [but] it is a bet at the end of the day. They continue to leverage debt to fund content. Their hope is that at some point they’ll have enough mass [and] global subscribers [to pay] for this content themselves and pay their banks back.”
The streaming company told shareholders that it intends spending up to $8 billion on new content in 2018, up from roughly $6 billion that it spent in 2017. At the moment, Netflix is $287 million in the red and the company to be anywhere between $3 to $4 billion in debt after this year. The company anticipates that it will be “cash flow negative for several more years as [its] original content [spending] rapidly grows.”
While Brown believes this is probably Netflix’s best bet to dethrone broadcast cable companies, he doesn’t discount that Netflix’s competitors are pouring even more money to try and outdo them. The streaming company has made a name for itself but is nowhere near global domination.
“Let’s not forget the TV companies that are spending $20 billion on content giving those to companies like NBC,” says Brown. “So there’s just a huge influx and there are a lot of assumptions that go into the Netflix take over the world scenario and a lot that they have to fight through.”
The streaming giant needs to continue growing its subscriber pool to ensure its creditors it can and will pay them back. If not the company could see a bitter end.