Netflix Must Create Ad Model or Raise Prices

Jan 01

Netflix announced that their original movie ‘Bird Box’ generated over 45 million streams in just the first week making it the best first 7 days ever for a Netflix film. However, some analysts say that their $12 billion in debt and mounting costs will require Netflix to either raise subscription prices again or create an advertising model.

Porter Bibb of Mediatech Capital Partners recently discussed the future of Netflix on CNBC:

Netflix Is Going to Soon Hit the Wall

Long-term Disney and the other major content producers are pulling their content off of Netflix and going it on their own. There’s no question that if you have a library of immensely popular content you’re going to draw a crowd no matter what. Everybody’s looking today at Netflix and the 45 million people who supposedly streamed Bird Box. If it had gone out as a theatrical feature it would have been the biggest box-office hit in the history of motion pictures.

Netflix Must Create Ad Model or Raise Prices

It can’t continue. Netflix reported for its last quarter a $3 billion negative cash flow. Their off-balance-sheet debt is mounting. It’s well over $12 billion right now. When they have to go out and continue to pay huge amounts for top talent they’re going to soon hit the wall. Netflix is going to have to do one of two things. They’re either going to have to create an advertising revenue stream or they’re going to have to raise their prices.

However, in the past when they’ve tried to raise their subscription prices their membership and subscriber lists have just plummeted right through the floor. They’re in a very tight corner right now and the major content producers and the major talent that has been giving them a lot of headlines is not a sustainable business model.

Verizon FiOS Has to Have ESPN

Verizon FiOS has to have the ESPN if they expect anybody to watch. It’s really curious that Verizon which has with the new CEO this year advertised heavily the fact that they don’t have any real interest in content. They want to be a distributor and stick with the dumb pipes while their competitors at AT&T and elsewhere are loading up on content.

With a single revenue stream, it’s not really the way to go. It’s taking a little while for the whole media market to shake itself out. It’s all going mobile, it’s all going streaming, digital, and video, so Verizon is going to be left at the gate. I think they’ll change their tune and come back to content. They made some overtures last year about acquiring both CBS and Viacom. It’s not out of the question that they come back and knock both of those into the Verizon pool.

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