Netflix is making headlines once again after rolling out a sum of $17 billion in 2024 for spending on original content. Netflix’s gross spend on content production has changed dramatically over the past decade, from a modest sum of $1.7 billion in 2012 to an expenditure of $13 billion in 2020. Let’s look at what this massive expenditure means for Netflix and the rest of the streaming industry.
Gross Spending
Netflix’s content expenditures have been on a positive trajectory since 2012. The company’s investment budget has grown from a meager $1.7 billion to $13 billion by 2020, and the sum is expected to hit the $17 billion mark this year. This high rate of growth is more than just a figure, it represents Netflix’s determined efforts to establish itself as the premier destination of original content.
The premiere of high rated tv shows like ‘Outer Banks’ and the ‘One Piece Live Action’ are significant turning points in this journey. The success of these Netflix shows emphasized just how important it is to create original content that cannot be found anywhere else. Netflix has also made sure to outspend other streaming companies like Disney+ and Amazon Prime, this has made the company gain more subscribers even as other companies keep expanding their libraries.
What does Netflix gain?
The main purpose of this big expenditure in original content is a calculated move designed to maintain and expand Netflix’s subscriber base. The media streaming market is becoming increasingly saturated on a daily basis, with new streaming services joining the industry and existing ones ramping up their game. This has pushed Netflix to invest heavily in diverse and high-quality shows, aiming to offer something for everyone, from action films to niche documentaries.
Original content also provides Netflix with a competitive advantage and allows the company to create an appealing brand identity. Unlike licensed content that can be pulled by rights owners, original productions are owned exclusively by Netflix, to attract new subscribers who seek exclusive watching experiences.
Industry-Wide Impact
Netflix’s $17 billion bet is sending ripples across the entire streaming industry. Other streaming companies are feeling the pressure to increase their content budgets so as to keep up. Sooner or later, streaming platforms will try to outdo each other in terms of who produces more and better content. Smaller companies in the market might struggle to compete with such high levels of investment, which could result in increased consolidation within the movie production industry. However, big streaming services like Paramount+ are likely to acquire these smaller production firms and further intensify competition. For content producers, this could open up more opportunities and higher budgets for projects, but it also puts a heavy burden on the creativity and originality of new films.
Financial Outlook
The financial metrics of Netflix still show high potentials and investor confidence despite the huge expenditure. Netflix’s stock (NFLX) has surged by 81.8% over the past 52 weeks, this reflects a strong market faith in the company’s investment strategy. According to the latest reports, Netflix currently has a five year average return on equity (ROE) of 29.4%, a return on invested capital (ROIC) of 10.4%, and a return on its assets (ROA) of 8.7%, the company shows no signs of falling off anytime soon. These investment figures basically represent Netflix’s ability to generate good returns on its stocks, and provide reassurance to its shareholders.
The fact that Netflix can attract new subscribers consistently while increasing subscription prices to support its expansive content library is another factor supporting the company’s financial success.
Netflix intends to stay ahead of other streaming companies for the longest time possible, as seen from its $17 billion investment in the production of original content just shows how determined they are. While the rest of the industry is still amazed by the company’s huge financial investment, Netflix continues to lead in the production of new Tv series and documentaries.
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