Netflix has spent the last several years cultivating an enviable original programming lineup. Now, the subscription streaming service wants to expand its original content even further, and has decided to spend a whopping amount of money to make it happen. This week, Netflix announced that the company plans to spend more than a billion dollars to fund new content and other projects.
In order to spend a billion dollars, the subscription streaming service must raise a billion dollars. Apparently, that $7.99 per month subscription fee the company is charging consumers hasn’t generated the large cash reserves necessary to move forward without a lot of help. According to Variety, Netflix CEO Reed Hastings recently told investors the company would continue to finance original content by incurring debt. Following the announcement, Standard & Poors switched the company’s credit rating from a BB-minus to a B-plus, which means the company is a bit more at risk than it has been in prior years. But you know what they say about risk and reward.
Netflix is already more popular than other streaming services, including Amazon Prime and HULU. Part of this is likely due to jumping into the original programming game early and already having a solid lineup that includes original adult programs like Lilyhammer, House of Cards and Orange is the New Black and original animated programs like All Hail King Julien. More brand new programs are already well underway.
Since Netflix has a large percentage of the market, in theory, the company should be able to pay this money back without much trouble, but in order to do so, it’s likely going to need to raise prices or add more subscribers. If Netflix churns out enough great shows, it could even do both, but raising prices is always a bit of a risky propositions since there are some who aren’t willing to pay anymore than they’re paying right now. This was proven the last time the company tried a big price hike. I wouldn’t be shocked if price hikes continued gradually, and Netflix has already announced a price increase that is expected to go into effect soon. Additionally, you can pay more to access more screens that can be in use at once.
The key for Netflix will be to create projects that people get excited enough about that they actually subscribe to the service to watch (Wet Hot American Summer, anyone?). Because ratings don’t matter, it’s all about what is actually making people shell out money. A large number of people thinking a certain show is only OK is actually a lot worse than a smaller number of people being obsessed with Orange Is The New Black or BoJack Horseman or whatever. Now, Netflix just needs to hope that enough people get obsessed that the billion dollars is put to good use.
