Netflix, Inc. (NFLX): Content Cost Still Dominates Investor Discussion

Netflix, Inc. (NFLX): Content Cost Still Dominates Investor Discussion

Netflix, Inc. (NASDAQ:NFLX) shares continued falling the day after the company’s latest earnings report. Nonetheless, they still remain far higher than they were a year ago. On the investor call on Monday, management revealed that on average, households are watching Netflix 90 minutes per day. In spite of that large amount of time, investors still had plenty of questions for management regarding the company’s content spending and original series.

Netflix, Inc. (NFLX): Content Cost Still Dominates Investor Discussion

Netflix investors just want more

One of the first questions Netflix, Inc. (NASDAQ:NFLX) management answered was about why the company’s second quarter results weren’t toward the top of its guidance, especially in light of the positive news regarding the company’s original series. It was revealed this month that House of Cards and other Netflix originals received several Emmy nominations—a major milestone for a video streaming company with original content.

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The company said they forecast earnings to be in the middle of the range they provide, which they did for the second quarter, so they’re happy with the progress.

Netflix faces questions about Arrested Development

Arrested Development was one of the first Netflix shows talked about, specifically because it was a popular show previously when it aired on network television. The company did say that the show impacted its second quarter results, but it did not say how much. Executives said they look at Arrested Development as a special case though because of the show’s popularity when it aired previously on network television.

Netflix, Inc. (NASDAQ:NFLX) said they saw “a little rise in gross additions that translated to net additions.” Management said it wasn’t “tremendously significant in the short term” and then pointed out that subscribers sign up not just for one show but for many. So while the addition of Arrested Development might have been the reason some subscribers joined, they then started watching some of the other content offered by the company.

Overall, management said they view original content as having a “compounding” effect and believe it will take some time before they have their originals together. In general though, the shows they have produced are performing well in their estimations in terms of viewership.

Netflix explains questions about free cash flow

On Monday there were questions raised about Netflix, Inc. (NASDAQ:NFLX)’s negative free cash flow, and investors jumped onto these questions and posted them to management after the earnings came out. They note the big investment the company is apparently making in its streaming video library and wanted to know the duration of the content and when it would run through the company’s income statement.

Netflix, Inc. (NASDAQ:NFLX) said they had been clear that their investments into content would be running ahead of their profit and loss expenses and weigh on their free cash flow. However, in the most recently completed quarter, they were pleased to flip it to the positive.

They said that would continue to invest in original series and other content that will keep weighing on their free cash flow but that they are “very comfortable” with their position now. Netflix also assured investors that it had to be competitive buyers in the market and that payments in the industry are made up front with returns coming later. They also noted that as some of their originals start to age, some of the cash they paid up front for those shows will begin to unwind.

Will Netflix raise its price because of pricey content?

Investors also wanted to know whether the $7.99 per month price tag Netflix, Inc. (NASDAQ:NFLX) has on its streaming services is the right price, and management said they were happy with it. When asked whether they would have to increase the price because they couldn’t afford the content they were buying, they said they were growing revenue faster than content cost.

Management was pushed for further answers on the issue, but they would not provide any.

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Michelle Jones is editor-in-chief for and has been with the site since 2012. Previously, she was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Email her at [email protected]
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