On a daily basis, Netflix has transformed the way many of us now consume television and film. Such a sweeping change though has come at a price and a rather large one at that.
The L.A. Times reports that the company has accumulated $20.54 billion in long-term debt and obligations in its effort to produce more original content.
The company isn’t showing signs of slowing down either and expects to spend at least $6 billion in content this year, while net cash outflow is forecast to grow to as much as $2.5 billion.
The service currently boasts 104 million subscribers worldwide, up 25% from last year and almost quadruple from five years ago. Its series and movies account for more than a third of all prime-time download Internet traffic in North America, and its stock is up nearly 50% this year alone.
But rivals like Hulu and Amazon are expanding their own slates of original programming fast. However, Amazon in particular, which also holds billions in long-term debt, has the advantage of its online retail operations being able to generate plenty of free cash flow.
So the question becomes what happens when subscriber growth slows (or stalls)? CEO Reed Hastings isn’t worried and says the payoff will be worth it: “That’s a lot of capital up front, and then you get a payout over many years. The irony is the faster that we grow and the faster we grow the owned originals, the more drawn on free cash flow that we’ll be.”