OK so Netflix did not actually have $3B to start with, they just raised their debt limit $400M (to take advantage of good interest rates). But still, $2.6B to boot into new content for them shows that they are doing well and are really geared at giving customers a continually growing catalog of entertainment. Sure, sure, HBO made more money than Netflix, topping out round $4.9B, but they have Game of Thrones. Plus, HBO has been around for what? 20-25 years? Netflix started streaming in about 2008, and had $4.37B in revenue. Who should be worried in that comparison?
While HBO is doing well, and I applaud them because they make some great original content, Netflix is also doing quite well, perhaps even more so given that they've done it all in far less time. I also applaud Netflix and CEO Reed Hastings on their vision and tenacity, and their original content plans as well.
$3B = $6.2B Actually
The $3B that it has to pay this year is really only the tip of the proverbial licensing iceberg which is well over $6B that they have to pay in the next 3 years, which explains why they have such low profits ($112M in 2013). International licensing was said to be taking a bigger chunk and may have accounted for some of the year-to-year rise in "cost of revenues" to 17%.
Their Own Worst Enemy?
The ever-rising price of licensing is partially their own fault. After all, only a handful of years ago they were buying up rights left and right for pennies compared to what they get it for today. The reason for the dramatic rise in licensing costs? Netflix. I mean if they weren't doing so well and starting to threaten so many other, more traditional, video entertainment outlets, they probably wouldn't be paying as much as they are. Oh the vicious cycle of success.
That could also help offset the loss that International operations are still seeing ($274M in 2013)
That's why I think they'll need to start shifting more and more into original content. Over time, it will have a better ROI. Maybe they are planning on slowing whittling some of that cash from TV shows into original content as some staples, like Breaking Bad and Sons of Anarchy, wrap up or get toward the end of their runs. They will surely free up some money that can then be put into content where they can pay a bit less and have more exclusive rights, maybe even a cut of merchandising and other revenue streams.
I'm sure Mr. Hastings and Netflix crew have an exit plan from the wild ride that licensing of TV content is taking them on. Now that broadcasters and cable networks have seen the light in regards to streaming content it's going to be more and more difficult for them to get reasonable licenses that still generate profit. So that means more original content. I've got some scripts I would love to pitch them…
Don't Miss Any Stories!
Get daily online video news, tips and trends via email!