Three years after it entered the original content business, Netflix looks to have originals make up about half of its offerings, CFO David Wells told investors today at the Goldman Sachs Communacopia Conference.
“It will take us a couple more years” to hit that target, he says. “We’re a third to halfway to where we want to be. … We’ve got a ways to go” as the company looks for “a mixture of production models” — though not sports or ad-supported offerings.
But he warned the Street that Netflix likely will burn more than $1 billion a year to satisfy its growing appetite for content, and might borrow more money. The streaming video power will be “a consumer of cash” for the next year and a half, and it “could take longer building content.”
While vowing to be “fairly disciplined,” Wells noted that “most of our media peers are much more levered” with debt. With its “reliable revenue stream” from monthly consumer payments, Netflix can afford to “be more levered” and still handle interest payments.
Consumers ultimately will have to pay the bill. As Netflix offers more originals, “we can raise [prices] slowly over time,” including by offering differentiated tiers of service. The CFO acknowledged that “we face pressure from investors that we’re underpriced.”
Netflix ran into trouble on Wall Street early this year when it announced weaker-than-expected subscriber growth — which the company attributed to a price hike that had been announced last year, but was delayed for many customers.
Wells noted, though, that about a third to half of customers who bail out of the service soon come back.
The company knows that a lot of subscribers share their passwords with others, but “there’s not a whole lot we could do. We could crack down on it, but you wouldn’t suddenly turn them into paid users.”
The company, whch has 83 million customers worldwide, expects to have western content account for 80% of its offerings overseas — with the remaining 20% from local productions.
“There’s tons of demand for western content,” the CFO says. “The quality of the content production is generally higher here….We add some icing on to the cake with local content.”
But he seemed to bristle at a questioner who said that Netflix’s international services were not as compelling as the U.S. one.
“It’s a popular meme that the non-U.S. consumer gets screwed,” Wells says. “I think that’s inaccurate.” The impression “preceeds Netflix” and comes from “decades of [overseas viewers] waiting for the latest shows to come.” To buttress his point, he noted that “the U.S. is not the highest country in terms of media hours viewed.”
Wells described Netflix-produced feature films as “an experiment” that “helps round out the content offering.He’s “pleased with Adam Sandler movies” and says the company also favors “a wide swath of smaller, more artistic, heavier” films similar to Beasts of No Nation.