Netflix A Necessity Now?
From liability of billions of dollars to momentarily generating promising cash flow
During the pandemic, Netflix has turned into an invaluable source of entertainment for households. With work from home culture and people staying indoors, there are more subscribers than ever at online streaming channels. By creating exceptional original content like The Irishman, Roma, Marriage story, also nominated for Oscars, the subscriber driven company has gained a monopoly in the market. However, I could not help but ponder with the economic recession, will it be a worthwhile expense for consumers once the lockdown lifts? Also, does Netflix generate sustainable revenue for long term success?
Content creation businesses are capital intensive. As Netflix doesn’t sell ads, it’s a lot more challenging for the company to achieve positive cash flows unlike its competition Disney. To have loyal customers they will need to continue their strategy of fueling more debt to create boundless original content, and consequently acquire more customers by selling affordable subscriptions. However, they don’t have supportable revenue for long term success.
Their model was challenging enough before the lockdown nevertheless during the quarantine they’ve achieved millions of new subscribers. With Netflix Party as a google extension and much-hyped binge-worthy series like Ozark and Money Heist, rather than being a choice, consumers are viewing it as an essential. The same can’t be said for its rivals as consumers soon exhaust the original content.
Netflix wants to be everything to its consumers. It’s trying to create a community for people to stay connected during a crisis. The question is will they have these many subscribers once the situation normalizes? Or once the free monthly trial expires?
I doubt. I think their model is broken. Being a data-driven company, they’ve made albeit obscure financial decisions. Today Disney has the capital to invest in more brilliant content and companies. It owns Marvel, Hotstar, Pixar, amusement parks, ergo, invests in products that are transferable across their customers. Netflix does not.
Moreover, I believe the consumers assured it’s a necessity are improbable to spend their time watching TV once the situation normalizes. Additionally, those paying for the subscription but not using the app will also let go as its not a valuable expense. The remarkable growth that Netflix attained during quarantine won’t last. Thus, by losing consumers Netflix may fall under the trap of debt bias with declining financial stability.
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