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How Does Netflix Plan to Make it’s Massive Investment in Shows and Movies Pay Off in the Long Run?

How Does Netflix Plan to Make it’s Massive Investment in Shows and Movies Pay Off in the Long Run?

Netflix is now the $180 billion dollar behemoth that sits atop the pile of streaming service companies. Their success over the last nearly two decades that they have been in business is undeniable.

However, people are always asking how they can possibly keep up the momentum going forward. These questions were intensified when the company spent $13.6 billion dollars on content in 2021.

That was a rise of 26% over the year prior, and some wondered if this spending plan might have been a little too aggressive.

However, Netflix saw its share price rise through most of 2021 as investors saw what the company was doing and felt that it was a reasonable way for the company to spend its resources. 

If that level of spending has worked in the past, should we expect Netflix to continue to spend at these levels going forward?

Recently, company history suggests that the answer to this question is yes. In fact, the spending may increase even more as the years go on. 

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The Future As Netflix Sees It

A man watching netflix on the phone.

Ever since Netflix was nothing more than a DVD by mail company operating under the watchful eye of Reed Hastings, the company has been forward-thinking.

They remain at least two steps ahead in order to maintain their spot as the best company for streaming purposes. This is why it is not surprising to hear that Netflix has a long-term vision for its content spending plans and for its growth.

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A few of the highlights from Netflix’s big plans going forward include: 

  • A Focus On Increased Accessibility – Accessibility to the Internet and to smartphones themselves is increasing around the world. The barriers to Internet access have fallen some, and this means that more people are getting on and checking out what Netflix has to offer. Many people who receive Internet access for the first time will search for Netflix as one of the first things that they do. They want to make sure they can engage with entertainment that keeps them occupied and up-to-date with current pop culture. Netflix is the perfect place for them to find those cultural references. 
  • Creation Of Content That People Love – Obviously, Netflix always wants to create content that its users love, but that is a lot easier said than done. The company will deal with a number of flops in order to get to the point where they find the pieces that work. Given this, it is critical that people understand that Netflix is always at work finding the next piece of content that they believe will work well for their viewers. They will not stop striving for this goal until they reach it, but they are specifically investing extra money at this time to try to find those hits.
  • Global Expansion – Netflix is now available almost everywhere in the world. One notable exception is China. Just like so many other American businesses, Netflix is locked out of the communist country. However, they are always working on building better business ties with China and with countries of the world. If they aren’t available in your region at this time, it probably won’t be long before they are. 
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These are just a few of the touchpoints that Netflix has recently keyed in on. They are still working on each of these goals and many more as they ramp up their content spending.

They have to keep an eye both on Wall Street and also on their customers at the same time. 

Spending Doesn’t Spook Netflix

The streaming wars have officially launched and are in full swing at this point. Companies such as Disney, Amazon, Hulu (owned by Disney), and Peacock (owned by NBC) are all in the business of streaming at this point.

However, these business battles have not scared Netflix away from high levels of spending to get the content that they want. A spokesperson for Netflix recently said the following about content spending levels:

“It’s served us well to use borrowed capital for our original shows,” and he went on to say “Thanks to our subscribers we have a fairly consistent revenue base, and we are borrowing at a relatively low rate relative to our equity and earnings power.”

What the spokesperson was indicating here is that Netflix has such a reliable stream of monthly revenue from its subscribers that it can spend on content without too much worry that it is going to suffer any negative consequences on its balance sheet.

They have enough income that they can borrow against that income at a very reasonable rate to continue to spend more on the content that they need for their customers. Thus, the spending is expected to keep up for the foreseeable future. 

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Netflix Is Well Positioned In The Streaming Wars

A cup with an inscription "Just one more episode."

One final note to leave on is the fact that Netflix is well-positioned to do well in the ongoing streaming wars. They are supported by their massive base of customers who spend every month for their subscription.

This has turned out to be a better business model than being ad-supported according to Starz CEO Jeff Hirsch. He says the following: 

“If you’re ad-supported, you have to be very big and very broad to be successful,” he went on to add “You saw the power of TV advertising during the Super Bowl,” and  “All of these media companies were running commercials for their streaming services on television.”

What he was pointing to was the fact that many of the upstart streaming services today are relying heavily on ads to keep themselves afloat and operational.

The digital ads that they do have are paying in some revenue for them, but they are not making nearly as much as they might from a steady base of subscribers.

Thus, Netflix is in great shape because they have conditioned their subscribers to pay their monthly fees without too many complaints, and they keep their movies and television shows ad-free as a result.

Thus, we should all expect Netflix to continue to pay for quality content and to work on out-competing other steaming war participants. 

Sources:

Netflix Content Spending in 2021 to Rise 26% to $13.6 Billion – Variety

Netflix, Inc. (NFLX) Stock Price, News, Quote & History – Yahoo Finance

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Reed Hastings (forbes.com)

Netflix – Overview – Long-Term View

Why Netflix (NFLX) Isn’t Worried That It’s Overspending on Content – TheStreet

Streaming wars: How to tell who’s winning — and who’s losing (cnbc.com)