For example, just announced is “The Gray Man” which Netflix is producing for $200M. Since the vast majority of the people who will watch it already have Netflix subscriptions how does Netflix actually make profit off this movie?
It’s not like it will encourage someone who’s subscription expires months after to hang on because of that one movie so where is the gain?
In: Economics
Netflix’s current financial situation as of their most recent reportings is this: $26.4B in debt on $20.1B in annual revenue. That might seem pretty decent except their net profit is only $1.87B for the year.
If Netflix didn’t take on another penny of debt and their profit margins remained stable, they would pay it off in roughly 14.6 years. That’s obviously not going to happen.
Netflix essentially has two paths to sustainability as a business:
1) **Monopoly on the streaming market** – This will allow them to basically raise prices higher as the only option for streaming entertainment for the masses. In time they will pay back their debt. Combined with the fact that they are the only streaming player on the market means that their debtors will be very lenient on them and feel secure in the fact that they face no risk to obliteration.
2) **Buyout from another Media Company** – Netflix has a huge subscriber base of 200M worldwide combined with a growing original IP library. This makes them an attractive acquisition target for the other Media giants out there namely Comcast and Disney. Once the purchase is complete, these Media companies can instantly absorb the Netflix customer base into their customer base, and also monetize the audience through various means including advertising directly through the platform and selling the demographic data of their audience to others.
Scenario 1 probably won’t happen now that there’s various competing streaming options e.g. Hulu, Disney+ and more on the way.
This leaves Scenario 2 as the only feasible option for Netflix to ever make whole on its debts.
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