Netflix subscribers got a bit of a shock over the last couple of weeks, as the streaming service – known for not cancelling its original programs – brought the axe down on Sense8 and The Get Down.
You may think that these are just two shows, so it’s not that big of a deal, but the numbers say that the problem goes way deeper. The numbers say that we could be looking at a major financial problem for Netflix.
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According to SeekingAlpha.com, Netflix’s business model for original programming may not be sustainable for very long.
The streaming giant’s content obligations – meaning the money that is spent on original programming each year – rose by 42% since 2010. In that same time frame, the company’s revenue has only risen by 24%. The total content obligations have now grown to total $15.3 billion.
What It All Means
When you break those numbers down, you’ll discover the sad fact that Netflix could start losing money soon.
The initial boom in subscribers, while Netflix didn’t have many original programs, set the company up for success. However, since the shift toward original series, Netflix is spending too much and its revenue can’t keep up.
Think about the subscription system here. At some point, there are no more subscribers to be had. Even if every person in the world had a subscription, there is still a limit.
Sure, Netflix could always bump up the prices, but that would cause uproar if not done correctly. If they raised the prices to keep up with the growing cost of programming, people will go somewhere else. Netflix certainly has cornered the market, but they will need to be careful if they want to hold on to it.
This is why Netflix has started cancelling shows. The last three to get canned – Sense8, The Get Down, and Marco Polo – were all incredibly expensive, and there wasn’t a lot of return on investment, despite the fact that they were quality programs. However, there are cheaper shows that are bringing in more revenue and award recognition. House of Cards and Orange is the New Black are prime examples.
So, if a series is expensive and doesn’t provide immediate results, don’t expect Netflix to keep it around very long.
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