No, Netflix isn’t in trouble.
Over the past few months, Netflix has been forced to defend its position as a leading position as a top-tier streaming service. When the Los Angeles Times reported that Netflix was more than $20 billion in accumulative debt ($15.7 billion in streaming content obligations and $4.8 billion in total gross debt, according to a Netflix representative), people wondered about the company’s financial future. After Disney confirmed it was removing its films from the platform by the end of 2019, people asked what that meant for Netflix’s future. Following a dispute between Netflix and the Cannes Film Festival, questions were raised over how Netflix would work with international distributors. Even directors like Christopher Nolan found a way to take on the streaming titan, vowing to never work with the company because its entire existence was a direct insult to how film was meant to be experienced.
None of this matters.
In an interview with Variety, Netflix’s chief of content Ted Sarandos said Netflix knew there would be fallout from studios like Disney and Fox, who began pulling its shows from the service earlier this year. Sarandos said they were betting on it to happen, adding that’s why they began investing heavily in original content back in 2015. Two years ago, Sarandos said Netflix was ready to spend $5 billion on original content. In 2016, the company spent $6 billion. Next year, the company is going to spend $7 billion. That’s close to $20 billion in three years that Netflix is ready to invest in ensuring it has exclusive, original series.
Netflix is especially good at one thing: planning ahead. Remember, Sarandos said they started planning five years ago for studios like Disney and Fox to split off. Going forward, one of Sarandos’ biggest fears is this trend continuing.
“The more successful we get, the more anxious I get about the willingness of the networks to license their stuff to us,” Sarandos said.
If Sarandos and CEO Reed Hastings can achieve their goal of having the content on Netflix be 50 percent original, that means Netflix doesn’t just become an additional service, but a necessary one for TV audiences. Netflix is willing to let go of Disney — albeit still considering the decision a big loss to the company — to bring on creators and shows people can’t live without.
Proof? Netflix’s multi-million, multi-year deal with Shonda Rhimes. Rhimes, who has become one of the most influential and successful television creators, is a name people will follow. Rhimes is a respected showrunner whose series people want to tune into. So much, in fact, that Grey’s Anatomy continues to be one of ABC’s most successful series even after 13 seasons and more than a decade on the air.
It’s the same reason that Netflix is teaming up with Chuck Lorre, undoubtedly with the intention to steal him away from CBS, and Jerry Seinfeld. Netflix knows it needs to spend big right now in order to build a dedicated client base that will continue to subscribe month after month.
Subscriber growth is still one of Netflix’s most important goals and, according to an interview UBS analyst Doug Mitchelson gave to MarketWatch, Netflix is on the right path to keep expanding.
“We expect Netflix’s original content ramp to continue to drive accelerating international net additions, especially as Netflix increases investment in local content overseas and expands genres such as movies and non-fiction,” Mitchelson said.
Last quarter, Netflix added 1.4 million subscribers, not quite the number the company was hoping for, but a growth nonetheless. Much of Netflix’s future hinges on international growth, which is why Sarandos and Hastings have made a push for more anime and Bollywood content in the past few years.
“Latin America has been a rocket ship for us,” Sarandos told Variety. “Western Europe is growing nicely. We’re just entering Asia. We have so much growth ahead of us. We’re focused on ‘How do we get people in Korea to love us as much as they do in Kansas?’”
Netflix is doing the one thing that video store companies like Blockbuster failed to do: judge where the market is going and take risks. Instead of investing solely on content executives know will perform well for a domestic audience, Sarandos and Hastings want to know how can Netflix expand its reach. How do you pull in a Shonda Rhimes-sized audience? How do you get keen anime fans interested in Netflix? Is there a way to have a movie debut at Cannes and appeal to cinephiles, while also creating a $100 million blockbuster that people will want to stream on a Saturday night?
Sarandos and Hastings think there is — and they’re spending nearly $20 billion on finding out. They’re also learning it’s time to cut costs, canceling more original shows than ever before and focusing on new trends or series that perform well. Even though Sense8 was beloved, it was expensive to make — on par with HBO’s Game of Thrones — and not attracting an audience anywhere close to that size. Hastings and Sarandos know they have to not only succeed critically, but they have to pull people in. It’s why series like 13 Reasons Why, a show that follows a teen’s suicide and divided Netflix subscribers, was renewed for a second season. Although the company doesn’t release viewership numbers, it was reportedly one of the service’s most watched.
Netflix’s executives know what they’re doing. With more than 104 million subscribers worldwide, Netflix still has room to grow and learn. Even with the $20 billion debt and the loss of Disney, Netflix isn’t going anywhere anytime soon.