It finally happened—Netflix implemented its $2 price hike for its existing customers starting next month. While this may not seem like much, it adds up when multiplied by the millions of Netflix subscribers in the US and UK. The streaming service has gambled by using its free cash flow to create some of the most popular original content in the world. So far, this gamble has paid off.
Over the next year, the streaming giant is predicting a 7-Billion-dollar commitment to new content. This will result in Netflix operating at a negative free cash flow for a projected three-year period. The popular streaming service is officially spending more than it makes. Has Netflix finally bitten off more than it can chew? Or, do they know something that we don’t?
Drastic times call for drastic measures, and that helps to explain the seemingly counterproductive financial moves by Netflix. The streaming industry went from a relatively small handful of services dominated by Netflix, to a multi-billion-dollar industry with competition around every corner.
This means that they need to step up their strategy to stay in the game. The content budget coupled with the company’s price hikes indicate that Netflix may be trying to build an edge over other streaming services. If everything goes as planned, the company should begin to turn a serious profit again before 2022.
In the meantime, they’re relying heavily on investors and projected growth to keep them afloat. Netflix has lost its cost competitiveness, and has moved to the middle of the road in service costs. Let’s hope they can produce content so mind-blowingly awesome that their newest gamble pays off. Otherwise, one of the original streaming pioneers might just be forced into retirement.
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