Netflixonomics: Cash-Burning Machine Blows Billions On Content In ‘Winner-Takes-Most’ Race, by Tyler Durden

Like Tesla, the more “successful” Netflix is the deeper the financial hole it digs itself. From Tyler Durden at zerohedge.com:

When Netflix published its third-quarter earnings last October, Ted Sarandos, Netflix’s chief content officer forecasted it would spend roughly $7 billion to $8 billion on original content in 2018.

The Economist, quoting a recent Goldman Sachs equity assessment, states that Netflix could spend $12 billion to $13 billion on original content, which is more than any studio or television network spends on films or shows that are not sports related.

According to the IndieWire, Netflix will roll out 82 feature films within the year, including Noah Baumbach’s “The Meyerowitz Stories” follow-up starring Scarlett Johansson and Adam Driver, and the Sandra Bullock thriller “Bird Box,” while Warner Bros. and Disney will respectively release 23 and ten films to cinemas.

The company is even producing or procuring more than 700 new or exclusively licensed television shows, including 100 scripted dramas and comedies, dozens of documentaries and children’s shows, stand-up comedy specials and unscripted reality and talk shows.

Moreover, its ambitions of global domination are now being realized, as current productions are underway in 21 countries, including Brazil, Germany, India, and South Korea.

In the first quarter of this year, Netflix had 125 million subscribers worldwide, 57 million of them in America. In 2016, the company’s global membership grew 48 percent; last year’s gain was 42 percent. With an average subscription of $10 a month, those customers represent some $14 billion in annual revenue which the company recycles the money back into programming, marketing, and technology—along with billions it must borrow to keep the scheme going.

Goldman analysts believe Netflix could spend an annual $22.5 billion on content by 2022. That would be collectively more than all entertainment spending by all U.S. networks and cable companies.

“We believe the growing content offering and expanding distribution ecosystem will continue to drive subscriber growth above consensus expectations. Based on the pace of both, we’re raising our revenue estimates and price target,” Goldman Sachs analyst Heath Terry wrote in a note to clients Wednesday.

“We believe Netflix’s ability to spend significantly more on customer acquisition while still producing ~4pps of operating margin expansion for the full year, on our estimates, will allow the company to drive additional subscriber growth, particularly in markets where the company’s brand presence isn’t as strong as it is in the U.S.,” he said.

The market values Netflix at $176 billion (as of July 06), which is more than CBS, Comcast, Disney, Twenty-First Century Fox, and Viacom. The Economist notes that some equity analysts recognize the high market capitalization as ridiculous because the company lacks profit, coupled with an enormous $8.5 billion debt load and limited media track record.

To continue reading: Netflixonomics: Cash-Burning Machine Blows Billions On Content In ‘Winner-Takes-Most’ Race

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