(Bloomberg Opinion) – Netflix Inc. would like to. thank you for attending his cash fires over the years but he says it ‘s time to go home now – and see more Netflix.
The video streaming company surprised investors on Tuesday by announcing that it is “very close” to being a true cash-generating company and does not need to borrow any more to fund day-to-day work. Translation: The money-making phase of Netflix’s evolution is coming to an end as it gets closer to being legitimately profitable.
This revelation, which came in the release of the fourth quarter results, is important because it would seem to strongly confirm the long-standing argument against the existence of a quarterback. Netflix shares – that the industry can’t sustain itself. After all, this is the only company that burned so much money in 2019 – more than $ 3 billion – that its brand should be a flame. At the time, Walt Disney Co. film studios earning the same amount, while its theme parks and other holiday-focused business lines attracted more than $ 6 billion in operating revenue.
But Netflix’s strategy – spending heaps of borrowed money to make future programs – left a unique and unique preparation for the Covid-19 crisis. While Hollywood productions had to shut down and other media companies struggled with the resulting shortage of content, the Netflix backend was built up that would allow it to -out blow after being hit across locks. There were “Tiger King,” “The Old Guard,” “Emily in Paris,” “Enola Holmes,” “The Crown,” “The Queen’s Gambit,” as well as new seasons of “The Umbrella Academy,” “Money Heist ”And“ Cobra Kai, ”and now his latest sensation,“ Bridgerton. “They also plan to release a new film every week in 2021.
Meanwhile, Disney and others have shifted their focus to streaming as the pandemic plagued their core industries, leaving movie theaters, theme parks and cruise ships. Even the old guards of the media industry now recognize that they have to accept loss for a period of time to stay relevant with viewers.
Despite all the new competition and recent Netflix price increases, the service managed to add 8.5 million subscribers in the fourth quarter, a million or more more than analysts had expected. These new users are largely outside the U.S., although Netflix has managed to surpass estimates even in North America. The stock rose 14% in after-hours trading, giving Netflix a market value of nearly $ 250 billion. Investors tended to be just as giddy about the prospect of the company buying stocks back in the future, as their report pointed out.
I wrote earlier Tuesday that the pandemic bought time streaming companies to work out their strategies. Even though consumers are kicking around trying different services, many are rewriting when new stuff is to be viewed. About 40% of “new” Netflix members in the last three months of the year were customers who paid for the service in the past, according to an anonymous credit card transaction and email receipt data Antenna searched for; rewriters also made up 45% of Disney + signatures in October, when season two of “The Mandalorian” came out.
Later this year, with vaccines hoping to be safer to socialize and travel again, churning will be a bigger challenge. Consumers will be less willing to pay for multiple subscriptions at once, and those that offer the least value will gradually lose relevance. Disney + is emerging as Netflix ‘s biggest competitor, with analysts expecting it to account for some 90 million subscribers when earnings are released next month. That puts Disney + on track to capture 200 million Netflix in the near future.
It is now clear that a pullback on spending would have done far more harm than good to Netflix – to a membership base, stock price and a common belief in the company ‘s management. Whether the result of a strategic genius or a bit of fortune due to the unique nature of the recession is staying at home (perhaps a bit of both), Netflix co-founders Reed Hastings and Ted Sarandos say, that’s us for you. ”But what the streaming wars have taught us is that the continued success of any video app will only be as strong as the content it produces.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and the owners.
Tara Lachapelle is a Bloomberg Opinion column writer covering the entertainment and telecommunications industry, as well as broader contracts. She previously wrote an M&A column for Bloomberg News.