Abstract

Today, Netflix has established a position as the world’s largest video streaming service. The company

nevertheless faces several challenges for maintaining this position and its continued global expansion, while

at the same time retaining its crucial foothold back home in the United States—challenges brought into

sharp focus amid interest in the level of debt the company is accruing in funding existing operations and

expansion. This case describes key competitive and market pressures facing the company, both at home in

the United States and overseas in the important Indian market. It invites students to place themselves in the

shoes of senior management at Netflix as they consider the global/local dilemma options the company

faces concerning the extent to which it can respond locally across a portfolio of diverse markets given the

high costs of content creation, increased competition, and customer demand for lower prices.

Case

Introduction

Figures for Q4 2020 position Netflix as the world’s largest video streaming service with 203.7 million reported
subscriptions across more than 190 countries—over 50 million more than its nearest rival, Amazon Prime Video.
This position notwithstanding, levels of competition, both domestically and globally, continue to rise, with many
significant new entrants over recent years—including, for instance, Apple TV, HBO Max, and the fastest-growing
service from Disney+, which acquired 95 million subscribers within just a year of its launch in 2019 (Wallach,
2021). In addition to the pressures this presents for maintaining current revenues within many existing markets,
including its crucial foothold back home in the United States, Netflix continues to target further growth in global
subscriptions, in particular through expansion across key Asian-Pacific markets including India—one of the
fastest-growing over-the-top (OTT) markets in the world. 1
Speaking in April 2021 shortly after the announcement of the company’s plans to release 41 new original
productions that year in India alone, co-founder and chairman Reed Hastings outlined that while India presents
a “tremendous opportunity” for the company, its “investment in India remains speculative” as the company
continues to “figure things out” there (Dash, 2021). While according to Netflix co-CEO, chief content officer, and
director Theodore A. Sarandos, the wait is worth it in India (ibid.), senior management at the company
nevertheless face important questions amid interest in the level of debt the company is accruing in funding its
operations.
At a global level: To what extent can the company successfully operate a locally responsive international strategy
across an expanding portfolio of diverse markets given the high costs of content creation, increased competition,
and customer demand for lower prices? At a local level: Will the wait indeed be worth it in India, given the
opportunities and challenges it presents for Netflix? Does it make sense for the company to invest as heavily in
original content for India as it has done in the United States? Would replicating the success of previous Netflix
original Indian programs such as Sacred Games, Typewriter, and Baahubali actually make paying for its service feel
worth it for sufficient numbers of Indian viewers? And what would success ultimately look like for Netflix in India?

Netflix in the United States

In 2019, a reported 85% of total streaming subscribers in the United States subscribed to Netflix. Indeed, 59% of
16–24-year-old U.S. residents considered Netflix to be “indispensable,” compared with 35% of those over 35
years of age. Market research forecast that increasing domestic competition, including the recent introduction of
Apple TV and Disney+, could see a decrease in Netflix’s U.S. market share. Projections suggest a decrease from
87% of OTT viewers in 2019, with overlap between different providers, to 86.3% in 2023. In 2014, the figure stood
at around 90% (Iqbal, 2020).
A national audience survey reported in 2020 that the most important consideration for U.S. users of streaming
services was cost. A total of 84% of surveyed users stated that this was either “extremely important” or “very
important.” The second most important consideration identified was ease of use (81%), followed by the
variety/availability of content (Nielsen, 2020). Against this backdrop, a price-point comparison showed that of
popular streaming services in the United States, Netflix was among the most expensive, following an increase in
monthly fees in 2019. Only HBO was more expensive, while the cheapest was Amazon Prime Video. Indeed, in
January 2020 it was revealed that 27% of U.S. Netflix subscribers were considering leaving the service after the
announcement of a 13–18% price hike (Iqbal, 2020).
The top reason cited by U.S. subscribers for their use of Netflix was the lack of interruption by advertisements.
This was followed by being able to choose what to watch, and then by being able to binge-watch (see Table 1). In
the light of recent price hike announcements, just over one-third of users have stated that they would not
tolerate advertisements on Netflix even if this brought the price down. A further 29% have stated that they could,
in fact, tolerate advertisements if it brought the price down by 50%, with a further 13% stating that they would
settle for advertisements if provided with a 25% price reduction (Iqbal, 2020).
Table 1. Top Reasons for Having a Netflix Subscription (1 = highest, 5 = lowest)

Mea
Reason
n

I like not being interrupted by ads 2.4

I can choose what to watch 2.5

I can binge-watch 2.7

I like their shows 2.8

 I like their movies 3.1

I like the content they create for me 3.6

I’m indifferent, my family want to subscribe to

4.4
Netflix

Kids programming 4.4

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Source: Kafka & Molla (2019).
In one 2019 survey, U.S. viewers overwhelmingly preferred Netflix over other providers when it came to original
content. Indeed, 60% indicated that its service was the best place for finding original programming. Amazon
Prime Video was a distant second with 15%, followed by Hulu and HBO with 8% apiece (Dick, 2019). Despite the
fact that the Netflix platform contains the largest movie library available to U.S. users, the size of this library has
shrunk by 40% since 2014. Since that time, the company has increasingly focused on the production of original
content. Netflix was set to invest approximately USD 17.3 billion in 2020 on content, rising from USD 15 billion in
2019, at which time Netflix was tied in third place—with ViacomCBS—behind second-place Comcast (USD 15.4
billion) and biggest spenders on original content Disney (USD 27.8 billion). Netflix’s investment in original content
is expected to increase to USD 26 billion by 2028 (Spangler, 2020).
With regard to delivery preferences, even after 2016 when Netflix users could download content to view offline,
statistics provided by the company itself reveal that computers remain the most popular devices used to
subscribe to Netflix, followed by (smart)phones. Company statistics released in 2018 also identify that 70% of
streams are viewed on televisions (Iqbal, 2020).

Comparing Cost Per Title Paid by U.S. and non-U.S. Subscribers

In a 2021 study comparing value for money—in terms of number of television shows and movies, for Netflix
subscribers across 77 different countries—the data suggested that U.S. customers did not receive the best value
for money (in terms of cost per title per month) despite having access to the largest library of titles available
anywhere on Netflix. A sizeable disparity was found in cost per title across different countries, with the study
concluding that Argentina and Turkey represented the most cost-effective locations to use Netflix streaming
services (Table 2). The eight least cost-effective locations identified in the study across Basic, Standard, and
Premium Netflix Plans were all European locations, reflecting in many cases the smaller libraries of titles viewers
in these locations can access, but principally the higher prices their viewers pay for Netflix subscriptions (Table
3). The United States recorded the 23rd most expensive Basic Plan, 11th most expensive Standard Plan, and 15th
most expensive Premium Plan (Moody, 2021).
Table 2. The Eight Most Cost-effective Locations for Basic, Standard, and Premium Netflix Plans

Cost per title

Monthly cost (USD)
Total library (USD)
Count
size (no. of
ry
Bas titles) Standa Premiu Standa Premiu
Basic
ic rd m rd m
 0.000
1 Argentina 4,855 3.28 5.40 7.87 0.00056 0.00041
68

0.000
2 Turkey 4,466 3.68 5.58 7.49 0.00062 0.00042
8

0.000
3 Brazil 4,479 4.13 6.20 8.65 0.00069 0.00048
92

South 0.001
4 5,308 6.44 9.04 10.99 0.00085 0.00052
Africa 21

0.001
5 India 5,500 6.81 8.85 10.90 0.0008 0.0005
24

Philippin 0.001
6 6,192 7.67 9.54 11.41 0.00077 0.00046
es 24

0.001
7 Indonesia 6,264 8.53 10.88 13.23 0.00087 0.00053
36

0.001
8 Malaysia 6,361 8.67 11.14 13.62 0.00088 0.00054
36
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Note: Selection rank order based on cost (USD) per title of Basic Plan
Source: Moody (2021).
Table 3. The Eight Least Cost-effective Locations for Basic, Standard, and Premium Netflix Plans

Cost per title

Monthly cost (USD)
Total library (USD)
Count
size (no. of
ry
Bas titles) Standa Premiu Standa Premiu
Basic
ic rd m rd m

0.003
1 Denmark 3,864 13.04 16.34 21.30 0.00211 0.00138
37

Switzerla 0.003
2 4,392 13.46 19.12 24.77 0.00218 0.00141
nd 06

0.002
3 Greece 3,355 9.80 13.48 17.16 0.00201 0.00128
92

0.002
4 Sweden 3,822 10.84 13.28 19.37 0.00174 0.00127
84
 0.002
5 Portugal 3,607 9.80 13.48 17.16 0.00187 0.00119
72

0.002
6 Finland 3,809 9.80 14.71 19.62 0.00193 0.00129
57

0.002
7 Spain 3,969 9.80 14.71 19.62 0.00185 0.00124
47

0.002
8 Belgium 3,992 9.80 14.71 19.62 0.00184 0.00123
45
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Note: Selection rank order based on cost (USD) per title of Basic Plan
Source: Moody (2021).

Distribution of Netflix Global Subscriptions

Although experiencing an increase in its number of U.S. users of less than 50% since 2015, Netflix has seen its
number of international users increase nearly fourfold (Armstrong, 2020). Within this, recent figures place the
Asia-Pacific region as the least-penetrated region for Netflix. Despite predictions for its increased penetration of
this region from 11% to 25% by 2025, it is considered that the Asia-Pacific region will, nevertheless, remain
Netflix’s least-penetrated region. In contrast, its penetration of EMEA (Europe, Middle East, and Africa) is forecast
to more than double in the same period, from 19% to 41% (Table 4). Indeed, as of December 2019, various
European countries (France, Germany, the Netherlands, Spain, and the UK) already represented five of the top 10
countries outside the United States for numbers of Netflix users (Table 5).

Table 4. Netflix Expected Penetration Growth by Region, 2019 Versus

2025

Region 2019 2025

United States and Canada 55 62

Latin America 39 53

Europe, Middle East, and Africa 19 41

Asia-Pacific 11 25
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Source: Iqbal (2020).
Table 5. Top Ten non-U.S. Countries for Netflix Users, December 2019

Country Users
 (millions)

Australia 14.4

United
12.5
Kingdom

Brazil 10.9

Canada 8.1

Germany 6.5

France 6.4

Spain 5.1

Japan 4.2

Netherlands 3.8

Mexico 2.7
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Source: Moody (2020).
Accounts registered in the United States continue to represent 37% of total Netflix subscriptions, which, at the
end of 2019, numbered 167.1 million. Despite the aforementioned increase in the number of international
Netflix users since 2015, the company continues to derive 50% of its revenues from the United States and
Canada (UCAN) (Iqbal, 2020). This is despite one 2019 survey reporting that 14% of U.S. Netflix users were
actually watching the service without paying for it (Kafka & Molla, 2019).
The Global/Local Dilemma and OTT

The global/local dilemma reflects important decisions in international business strategy regarding the extent to
which a company responds locally to precise conditions and requirements in different international markets or,
alternatively, provides a more standardized offering across the markets in which it operates. The former will see
products or services adapted to suit different languages, tastes, and lifestyles as well as to competitive and
market conditions and other regulations in different markets, while the latter will see greater global integration
through which the company’s business will be conducted in a similar (if not in some cases identical) way around
the world. Decisions surrounding this dilemma have implications for the fragmentation and distribution of a
company’s global operations, the type of international business strategy it operates, and the relative advantages
and disadvantages this strategy can present.
At one end of the spectrum, a highly locally responsive, or multidomestic, approach can see the location of
important value-adding activities, including production and marketing, to the target market in order to
understand and cater for local tastes and lifestyles and draw upon local expertise and other locational
advantages. Considered advantages for this approach include capacities to more precisely cater for local tastes
and lifestyles and respond to local changes in competitive and market conditions, while considered
disadvantages include hindered resource and capability sharing or cross-market transfers and higher production
and distribution costs. In the case of OTT, such an approach might, for instance, take the form of a multinational
service provider producing different original content catalogs in different markets in order to cater for the
specific requirements of their respective audiences.
At the other end of the spectrum, a more standardized, or global, approach can see the location of activities
away from target markets themselves, with activity location decisions based on alternative locational advantages
in the form of, for example, low-cost labor and access to key resources, which are leveraged across a highly
integrated global network aimed at cost reduction through standardization. As well as lower production costs,
considered advantages to such a global approach are efficiency gains through possible transfer of best practices
across markets and possible benefits presented through global brand recognition and reputation. Considered
disadvantages are limited capacities to meet local market interests and needs precisely and to respond to
changes in local market conditions, higher coordination and integration costs, as well as increased
transportation costs and tariff charges. In the case of OTT, such an approach might, for instance, take the form of
a multinational service provider offering a standardized catalog of titles and services across all the markets in
which it operates.
Between these two ends of the spectrum are various positions for reconciling the relative advantages and
disadvantages inherent to these global/local decisions, as well as their implications for the fragmentation and
distribution of operations, in light of the competition and the market conditions which a company might face.
These can include, for example, a transnational approach, in which a company might look to leverage the
advantages and opportunities of both the multidomestic and global approaches, as well as a regional approach,
whereby a company might adapt products or services for different regions (or selections) of closely related
markets, rather than for individual markets themselves.

The Potential of the Indian Market

In 2017, in was predicted that the OTT market in India would grow, year on year, by 35% (Bhatia, 2017). The
online video market in India, valued at over USD 700 million in 2018, is expected to grow in value by USD 2.4
billion by 2023 (Singh, 2018). In July 2018, it was reported that the growing interest of Indian consumers in trying
online streaming services had resulted in the arrival of more than 35 different streaming service providers in
India in the preceding three-and-a-half-year period (ibid.).
These developments occurred against a backdrop of substantial investment in digital and telecommunications
across India, which increased access opportunities to OTT services. For instance, just under 19% of the
population in India reportedly owned a smartphone device in 2015, a proportion forecast to exceed one-third of
the population by 2021 (Asher, 2020). This is with 1 billion reported mobile connections in India in January 2020,
although this number had fallen by 1.4% (15 million) from the previous year. At the same time, there were also a
reported 687.6 million Internet users across India, constituting a penetration rate of 50% and representing an
increase of 128 million users (23%) from the previous year. Of this, 400 million were users of social media—a
penetration rate of 29% (Kemp, 2020). According to CNBC:
much of the credit for the boom in streaming goes to the stark drop in India’s mobile data prices [in part,
following] a telecommunications price war in the nation in the second half of 2016 [that brought] millions of new
users to the internet, and changed the way many consumed data. Thrifty Indians, once extremely conscious
about each megabyte they burned on the web, are now reportedly clocking 1.5 million terabytes of data each
month. (Singh, 2018)
Having entered the Indian market in 2016, Netflix itself has since invested in compression technology in order to
facilitate the delivery of a high-quality viewing experience even in the absence of a fast connection. Speaking at
the Future of Video India Summit 2019, Abhishek Nag, Netflix India’s business development director, said:
There was a time when if you wanted a high-quality video on Netflix you will be on a 750kps connection. Today
you can watch extremely high-quality video on Netflix at 270kbs. You do this because we invest significantly on
compression technologies. (Indiantelevision.com, 2019)
Such investment aside, Netflix nevertheless faces several crucial challenges for expanding in India.
Challenges for Netflix in India

Even before the entry of Netflix and other online streaming platforms, the television sector in India was already
awash with an array of different channels and content offerings, ranging from regional, local-language stations
to Hindi-language pay channels, including public broadcaster Doordarshan, Disney-owned StarPlus, Sony
Entertainment, and Zee (Dhaliwal, 2019). With a predicted compound annual growth rate of over 10% up to 2024,
India is considered one of the world’s fastest-growing OTT markets and is currently home to around 40
providers. The Indian market was forecast to grow in size to USD 5 billion (Consultancy.in, 2021), with over 500
million users (IBEF, 2021), by 2023, although many now believe such figures may need revising upwards following
substantial increases in OTT service uptake across India during the COVID-19 pandemic-induced lockdown
(Consultancy.in, 2021).
Across the market, while the likes of Voot have operated a freemium model in which advertising drives revenues,
the likes of Hotstar and Sony operated a hybrid model drawing revenue from subscriptions—but mainly from
advertisements—and with access to premium content often restricted to paying subscribers. Amazon and
Netflix, in contrast, operate a more traditional subscription model, although in the case of the former, this is
through Prime membership which includes Amazon Prime Video as an extra (Bhatia, 2017). For instance, the
main reason people in the United States report subscribing to Amazon Prime is to gain access to free Amazon
shipping. This reflects a potential strategic disadvantage for Netflix, both in India and elsewhere, in Amazon’s
capacity to leverage such complementary services in looking to increase subscriptions (Nielsen, 2020). This
explains Amazon Prime Video possessing the largest proportion (100%) of paying subscribers among leading
streaming service providers in India by 2017 (Table 6).

Table 6. Percentage of Paying Subscribers for Leading Streaming Services in India,

2017

Provider % paying subscribers

Amazon 100 (through Amazon Prime membership)

Netflix 6–8

Hotstar 3–5

SonyLIV 0–1
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Source: Bhatia (2017).
Revenues in the Indian market continues to be driven, however, by advertisement-based models, although
subscription-driven revenues are increasingly growing in significance. For instance, in terms of number of paid
subscriptions, as of December 2020, Disney+Hotstar 2 had become the largest OTT subscription service in India
with 18.69 million subscribers, up from 5.36 million the year before. This was followed by Amazon Prime Video
with 5.83 million, up from 4.34 million in 2019; Netflix with 3.08 million, having added over 1 million subscribers
from the previous year; followed by Zee5 and SonyLIV with 2.7 million (up from 1.99 million) and 1.81 million (up
from 659,000) respectively (Biswas, 2021). Against the backdrop of the COVID pandemic resulting in many people
staying at home, the number of paid-for OTT subscriptions in India increased by 30% between March and July
2020, from 22.2 million to 29 million (IBEF, 2021), contributing an estimated additional 15–20% to OTT revenues
(Biswas, 2021).
Forecasts suggest that solid growth could see the numbers of Indian Netflix subscribers increase to 10.2 million
by 2025—a rise that could result in its penetration rate increasing from 2.9% in 2019 to 3.3% (Iqbal, 2020).
In early July 2018, Netflix premiered its first Indian original content: Sacred Games. In 2019, following the success
of its previous Indian original content, Netflix announced a further six series, including the ghost
story Typewriter and Baahubali, a fantasy epic akin to Game of Thrones (Dhaliwal, 2019). While Netflix focuses on
developing content in Hindi and English, the catalog of rival Hotstar contains content in Kannada, Malayalam,
Tamil, and Telugu, in addition to Hindi and English (Annamanen, 2018).
It has, however, been reported that around 40% of the Indian population speak Hindi as a first language, with
around 12% fluent in English (North, 2019). Indeed, although 23 languages are recognized as official languages, a
2001 census identified 450 spoken languages across India (Annamanen, 2018). It has also been reported that
only around 7% of the total time spent by Indian users on OTT platforms is spent watching English content, with
90% of Indian users indicating in one study their preference for watching video content in regional languages
(IBEF, 2021).
To compound things further, not only is Netflix unable to offer many premium shows and film titles within its
catalog in India due to licensing arrangements, but rival Hotstar owns the rights to screen high-value content in
India including HBO’s Game of Thrones, as well as streaming live cricket and football. The 2018 FIFA World Cup,
for example, was streamed by a record number of viewers across India on their phones, while in April and May
2018 the Indian Premier League cricket competition was reportedly watched by over 200 million Indians via
Hotstar (ibid.)
One suggested opportunity for on-demand streaming shows was their exemption from control by India’s Central
Board of Film Certification—a statutory film certification body in the Ministry of Information and Broadcasting.
As well as prohibiting bad language, sex, and violence, the regulations have led content creators to shy away
from candid portrayals of challenging topics or aspects of Indian life—particularly in relation to women.
Nevertheless, new streaming services paved the way for directors such as Zoya Akhtar to tell authentic stories
relating to women in India (Dhaliwal, 2019).
Moreover, “Netflix’s Hindi-language horror series Ghoul found a strong non-Hindi-speaking audience in the US,
UK, Canada, and Australia,” with 45% and 37% of viewings with English subtitles and English dubbing, and
pointing “to a growing worldwide taste for Indian content beyond the country’s large expat communities”
(Dhaliwal, 2019).
In February 2021, however, the Indian government revealed new regulations for streaming platforms and other
digital media that would bring them into the scope of the Ministry of Information and Broadcasting. Considered
by many as a move by the government to tighten its grip over streaming platforms in India, these proposed new
regulations came amid continued public and political reaction to controversial content and subject matter in
shows from services such as Netflix and Amazon Prime. In some instances provoking reactions by, for instance,
the Indian National Commission for the Protection of Child Rights, widespread public criticism including by
members of the ruling Bharatiya Janata Party, and registered complaints and legal troubles for providers and
leading actors, this has resulted in a series of public apologies and content removal and editing. The proposed
new regulations would include self-classification of content across five age-based categories by OTT service
providers (Universal, 7+, 13+, 16+, and Adult), parental locks, and a three-level grievance redressal procedure
(Sharma, 2021).
In 2019, Netflix announced that it had earmarked USD 420 million for producing and licensing content in India by
the end of 2020. In July 2020, 17 new shows and movies were announced for release over the next few months
(Singh, 2020).
In 2018, Netflix cost three times more than Hotstar. The lowest tier for the latter provider’s services were free,
while its premier tier was priced at INR 199 (USD 3) and provided access to more than 200 U.S. shows, including
more than 40 from HBO, as well as an array of regional content. In contrast, Netflix’s lowest tier monthly, single-
device subscription was priced at INR 500 (USD 7.80), with its two-screen HD package coming in at INR 650 (USD
10) and highest 4k package at INR 800 (USD 12.50) a month (Jonnalagadda, 2018).
Some analysts assert that a further dimension relates to the fact that, unlike their U.S. counterparts, Indian
consumers have fewer incentives to “cut cables” and move away from traditional cable networks, whereby:
In the US, a monthly cable TV subscription could cost more than $100, making offerings by Netflix, Amazon and
others quite appealing … [however] in India, that price point has remained under $4 for the last two decades.
(Singh, 2018)
Indeed:
In a country where piracy is seen as a right, competitive pricing is the only way to get customers to switch over to
legitimate streaming services. (Jonnalagadda, 2018)
For instance, with growing numbers of Indians watching content digitally amid the COVID-19 pandemic
lockdowns, in February 2021 it was reported that advertising and subscription-based video streaming service
providers were losing up to 30% of their annual revenues to piracy (Jha, 2021). Comparing data from the last
seven days of March 2020 with the last seven days of February 2020, MUSO—the global authority on digital
piracy—reported significant increases in film and television piracy of 63% and 24% respectively in India following
the COVID-19 lockdown. However, rather than an issue relating specifically to India, the MUSO report outlined
that this was part of a broader global trend which had witnessed a reported 33% increase in film piracy globally
following the lockdowns. For example, 41% and 43% increases in film piracy were reported in the United States
and the UK respectively, along with 12% and 30% increases respectively in television piracy in both countries
(MUSO, n.d.).
July 2019 saw the launch of Netflix’s new Made for India mobile-only plan (INR 199), especially designed for Indian
users. This was the cheapest Netflix plan worldwide, and, at the time, was only available in India (Saha, 2019).
According to some analysts, there are, however, several limitations to this plan, including a lack of high-definition
content and its restricted use to just one smartphone or tablet. Indeed, Netflix’s own full-featured plan at a
subscription fee of INR 799 per month provides access to four screens and ultra-HD content, while an Amazon
Prime subscription costs as little as INR 129 a month, or INR 999 annually, for which users can access unlimited
video streaming and many additional benefits such as advertisement-free music, priority delivery of purchases
from the e-commerce site, and early access to deals (Chauhan, 2020).
Following its successful testing in India, Netflix expanded its mobile-only plan to nearly a dozen markets,
including Malaysia. The summer of 2020 also saw Netflix test a new low-cost subscription tier in India: the
Mobile+ Plan. Available to some new and existing subscribers, this delivers HD-quality streaming across mobile,
tablet, and computer devices, but not televisions, at a price of INR 349 (USD 4.70) a month (Singh, 2020). Indeed,
speaking in April 2021, Gregory Peters, Netflix chief operating officer and chief product officer, commented that
while the company is still trying to figure out the right pricing model for India, as a low average revenues per user
(ARPU) market, India continues to push the company towards more pricing experiments (Dash, 2021).
Conclusion: The Broader Financial Picture for Netflix

The prospects for Netflix’s continued domination of video streaming in the United States and global expansion
have, over recent years, divided opinion among investors, financial and technology commentators, and
journalists. One aspect of this relates to uncertainty over its potential for achieving future subscription growth
targets. In July 2018, for example, Netflix’s stock price was sent into a sharp dive after the company posted
weaker than expected Q2 subscription growth figures, leading many to ask whether this was simply a single-
quarter dip or perhaps an indication of something more worrisome (Toy, 2018).
Another aspect relates to the growing level of debt Netflix is accruing as it continues its considerable advances
into content production, while at the same time securing rights for additional content and expanding its global
subscriber base. In October 2017, for instance, one commentator reported:
Netflix’s long-term debt and other obligations totalled $21.9 billion (US) as of Sept. 30, up from $16.8 billion at
the same time last year. That includes $17 billion for video programming during the next five years, up from
$14.4 billion a year ago. (Liedtke, 2017)
As well as announcing in October 2018 that it would raise another USD 2 billion in debt in order to fund new
content (Perez, 2019), in mid-2019 the company announced plans to raise a further USD 2 billion in debt to fund
“content acquisitions, production and development, capital expenditures, investments, working capital and
potential acquisitions and strategic transaction” (Perez, 2019). This announcement came ahead of the launch of
new streaming offerings from rivals including Disney+, Apple TV, and AT&T’s WarnerMedia. Earlier in January
2019, the company had announced that its cash burn would peak in 2019, with its free cash flow deficit for 2019
to end up at around USD 3.5 billion. It was also reported that, by that point, Netflix had yet to pay down any
significant amount of that debt, resulting in a 57% increase in the interest being paid on the debt (USD 135.5
million in Q1 2019, from USD 81.2 million the previous year, representing ~3% revenue) (Perez, 2019; see
also https://www.macrotrends.net/stocks/charts/NFLX/netflix/total-share-holder-equity).
Writing in July 2018, one financial analyst and commentator indicated that because Netflix only makes a small
profit, it needs to borrow in order to fund content creation. Besides, “the $5.4 billion it spent developing content
in just the past six months dwarfs the $1.3 billion in profit it’ll earn this year” (McBride, 2018). While a great
admirer of what Netflix has achieved during its lifetime so far, the author concluded that “Netflix’s best days are
behind it.” The aforementioned release of new streaming services from a number of large cable networks and
studios would, he argued, not only end an era of “zero competition” for Netflix, but would also see the company
lose much of the premium content it currently sources from said networks and studios (ibid.). In addition to titles
featuring many old Disney favorites, the launch of Disney+ by Walt Disney would see Netflix lose premium
content from Marvel, Pixar, and Star Wars, to name but a few. For another analyst and commentator, this puts
Netflix at a notable disadvantage: while it is spending billions to “try out” new content, many networks and, in
particular, studios such as Disney already have access to many of the best titles in its catalog (Liedtke, 2017).
Because its level of borrowing is “unsustainable” (McBride, 2018), Netflix was considered to have “three bad
choices [available to it]: continue borrowing billions and bury itself deeper in debt … dramatically raise its
subscription prices … or cut back on making new content”—operational and financial choices that have been
brought into even sharper focus amid the competitive and market challenges Netflix faces back home in the
United States and beyond while its global expansion plans seemingly continue unabated.
Despite earnings per share for the quarter coming in slightly below expectations, Netflix’s stock skyrocketed in
early 2021 following the announcement of its Q4 2020 earnings. Blowing away the expectations of many analysts
and commentators, the company reported the addition of 8.51 million new subscribers worldwide, with 7.7
million originating from outside UCAN, with 4.46 million new subscribers coming from the EMEA region alone.
While acknowledging the potential impact of the COVID-19 pandemic on the scale of subscription growth,
reports of these figures cite examples of recent successful Netflix original local content such as Barbarians in
Germany, Sweet Home in South Korea, and, notably, Lupin in France—titles which had not only drawn viewers to
Netflix in these markets but had also translated to hits in the United States—in identifying that “it’s those
international markets, and the content that appeals to those consumers, that analysts say will continue to push
Netflix forward in the future” (Howley, 2021).

Notes

1. “Over-the-top” denotes media content delivered directly to viewers via the Internet, including video-on-
demand (VoD) services, rather than through broadcast, cable, and satellite providers.
2. Leading Indian streaming platform Hotstar was acquired by the Walt Disney Company in 2019 as part of its
acquisition of its U.S. parent company 21st Century Fox.

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