The streaming giant is more popular than ever. But recent financial reports paint a cloudy picture.


This year has been another great one for Netflix. During the second quarter of 2017, Netflix reported to its shareholders that it added 5.2 million subscribers worldwide, bringing its overall total to 104 million. The word “growth” is basically synonymous with Netflix.

And yet, things aren’t quite as rosy as they seem. A recent report from The Los Angeles Times revealed that Netflix is trapped under $20 billion in debt. Also troubling: the company’s cash flow for 2017 is projected to be $2.5 billion, a 50 percent leap from a year ago. So if you’ve wondered how Netflix has produced so many shows and films in such a short time…well, here’s the proof.

These numbers lead us to two questions: 1) Is Netflix’s business model sustainable? And 2) What changes, if any, can Netflix make?

To answer these questions, we’ll look at the journey Netflix has taken these past few years, beginning with TV.

TV

Netflix’s foray into original programming in 2013 ushered in the current era of Peak TV. Five years in, the service has hit a high batting average: shows like House of Cards, Orange is the New Black, Stranger Things, and 13 Reasons Why became cultural phenomenons. But for every show like Stranger Things, there’s one or two that disappear without a trace.

Moreover, Netflix refuses to release viewership data, leaving independent research firms to do the dirty work. The questions of who is watching and what they’re watching grow more pressing when analyzing Netflix’s wide range of shows. In short, can Netflix produce enough programming to serve every part of its subscriber base?

Despite renewing 93 percent of its shows, Netflix has acted like a traditional TV network in 2017, as shows like The Get Down, Sense8, and Girlboss were given the axe. The Get Down and Sense8, despite having cult followings, were wildly expensive and didn’t make enough of a cultural imprint. Girlboss, on the other hand, is the rare Netflix show to be cancelled after one season. It seems that Netflix can admit failure when it sees it—something that even powerhouses like HBO and FX have had to do.

These cancellations, however, could be an anomaly. Showrunners will flock to Netflix due to creative freedom. And with a subscriber base in the nine digits, Netflix will still produce an insane amount of shows. But it could be in Netflix’s best interest to look at HBO or AMC and cultivate a brand identity than can better link its original shows. This, in turn, can help Netflix determine which shows are worth investing in.

Movies

Netflix delved into original films when it acquired Beasts of No Nation in 2015. The Adam Sandler deal aside, Netflix’s original films have been impressive; filmmakers that have been left out of the major studio system have found an ally. Such is the case in 2017.

Among the films released by Netflix in 2017: I Don’t Feel at Home in This World Anymore, a Sundance acquisition that won the festival’s top prize; War Machine, a satire with Brad Pitt portraying a fictionalized version of disgraced Gen. Stanley McChrystal; and Okja, a Spielbergian tale from the director of Snowpiercer. These films have been critically well-received. However, Netflix has faced criticism not from a financial sense, but rather an aesthetic one.

At this year’s Cannes Film Festival, Netflix decided to enter Okja and Noah Baumbach’s The Meyerowitz Stories into the competition section. Festival organizers who value the theatrical experience protested the decision, going so far as to ban non-theatrical films from future competition. The screening of Okja, despite concluding with a four-minute standing ovation, had a disastrous start: audience members booed when the Netflix logo appeared on screen, and a projector malfunction led to a 20-minute delay.

On top of the Cannes controversy, Christopher Nolan critiqued the Netflix distribution model while promoting Dunkirk:

“Netflix has a bizarre aversion to supporting theatrical films,” Nolan said in an interview this week. “They have this mindless policy of everything having to be simultaneously streamed and released, which is obviously an untenable model for theatrical presentation. So they’re not even getting in the game, and I think they’re missing a huge opportunity.”

The home vs. theatre debate has been a part of culture since the birth of TV, and Netflix is the latest “enemy.” And while the reactions from Cannes were excessive, Nolan isn’t opposed to streaming services entirely; rather, he offers support for Amazon’s 90-day theatrical window — a strategy that worked for Manchester by the Sea last year and this summer’s The Big Sick.

Will Netflix eventually change their release strategy? It’s tough to say. But as Netflix’s films grow in budget and star power, this question will intensify. This Christmas will see the release of Bright, a $90 million action-fantasy blockbuster starring Will Smith. And in 2019, Netflix will unveil Martin Scorsese’s long-awaited The Irishman, a $100 million gangster epic that’ll reunite the director with Robert DeNiro. How could a filmgoer not want to see these two films on the big screen?

***

The quality of Netflix’s TV and film has been consistently strong. The quantity of projects, along with their costs, is concerning. How can Netflix right this perception?

On the TV end, Netflix can be more upfront about which shows are resonating and which aren’t, even if they don’t release viewership data. Creating a stronger brand identifies which shows to get behind; i.e., what do these shows have in common besides being Netflix originals?

On the film side, budgets of $90-$100 million should be the max. Netflix is helping the once-splintering independent film movement, and making films the size and scope of Disney/Marvel would betray that trust. Also, putting these films in theaters for 90 days wouldn’t necessarily mean Netflix is copying Amazon. Rather, it makes a Netflix film release that much more meaningful.

As to whether Netflix will be fine, the answer is yes. Whether it’s ordering DVDs, introducing streaming, or releasing whole seasons at once, Netflix has always been, and will continue to be, an innovator.

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