Netflix Q1 Report Shows Rising Debt, Negative Free Cash Flow

Netflix may still be seated on the throne for over-the-top (OTT) content in most ways, for the time being, but the company is also bleeding money pretty heavily according to Q1 2017 shareholder documents. Moreover, and in spite of the fact that the company expects to surpass the 100 million subscriber mark over the coming weekend, that "cash burn" is expected to continue well into 2017. In fact, free cash flow (FCF) for the company is predicted to hit a remarkable negative $2 billion as compared to 2016's negative FCF of $1.7 billion - a difference of around $300 million. It could also extend well beyond that, although the situation may not be as bad as it seems.

According to the report from Netflix, the company is investing heavily in paying for and creating original content with high production value, instead of simply licensing content. That doesn't cover the entirety of the negative FCF - with other portions categorized as pertaining to "small and growing operating margins" - but it does make up a significant portion of the negative flow. Netflix views the outbound cash as part of a long-term strategic approach. Last year brought some very well-received Netflix Originals such as Stranger Things, but even before that Orange is the New Black was also fairly successful. Well-marketed original series ventures can produce returns in excess of money spent and can also be less expensive to create than licensing fees would be for a film or television series.

What bothers analysts about the spending at Netflix is the statements made regarding the length of time the bleeding is expected to continue. Negative FCF can be expected, according to the Q1 documents, to continue alongside the company's content growth "for years." That statement could be read to imply that the OTT provider doesn't see the rate of negative free cash flow or the increases year-over-year to that rate as any kind of problem - and realistically, Netflix could be right about that. The move could create and cement a reputation for high-quality original content coupled with a versatile array of ways to view that content. That said, it could also become a problem very quickly depending on the production value of that original content and the quality of service, with regards to how those things are perceived by subscribers and potential subscribers. Coupled with the fact that the company's debt already is resting at around $3 billion and that competition is increasing, it is a very risky move.

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Daniel Golightly

Senior Staff Writer
Daniel has been writing for AndroidHeadlines since 2016. As a Senior Staff Writer for the site, Daniel specializes in reviewing a diverse range of technology products and covering topics related to Chrome OS and Chromebooks. Daniel holds a Bachelor’s Degree in Software Engineering and has a background in Writing and Graphics Design that drives his passion for Android, Google products, the science behind the technology, and the direction it's heading. Contact him at [email protected]
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