Netflix Betting Big On Original Content

Netflix (NASDAQ:NFLX) is planning to spend $15.7 billion on streaming content deals in the next few years. CEO Reed Hastings confirmed at a conference earlier this year that $6 billion of the amount is slated for new shows being developed this year. Many of the other commitments are years in advance.

The company has been doing quite well. Netflix is expected to report an increase in sales of more than 25 percent for 2017 and double its previous earnings. The company currently boasts an annual growth rate of 30 percent, with 10 percent growth in the first 6 months of 2017. The company finished the second quarter with $3.4 billion in long-term debt, up from $2.9 billion at the end of December.

Over the next few years, Netflix’s more than 100 million subscribers will have many new original shows to enjoy. Netflix has signed writer/creator Shonda Rhimes to a multi-year deal, effectively stealing her from Disney’s ABC network. Rhimes is the brain behind mega hits “Grey’s Anatomy,” “Scandal” and “How to Get Away with Murder. Terms of the Rhimes deal have not been disclosed.

Netflix may need to boost its monthly subscription rate to help pay for it all. The company currently uses three tiers of pricing in the U.S.: a basic streaming plan for $7.99 per month, a standard streaming plan for $9.99, and a premium plan for $11.99. Netflix has 50 million U.S. subscribers, for a penetration rate of 50 percent.

Netflix wrote in its most recent quarterly earnings filing with the Securities and Exchange Commission that “we expect that from time to time the prices of our membership plans in each country may change.” Netflix increased prices in Australia earlier this summer and raised prices in Canada last week.

Other media companies are beginning to look at Netflix as more of a foe than friend. Disney stated in a recent announcement that it will not renew the contract it has with Netflix which expires in 2019. Disney also recently announced plans to launch its own streaming service in 2019. The plan would move many Disney movies and TV shows from Netflix to Disney’s own streaming platform.

Disney is also planning to start a streaming service for ESPN. However, it is believed that not many providers will go it alone in streaming. It takes to time establish such a service and maintaining it would be very expensive.

Netflix shares are up about 40 percent this year. The company’s market value is nearly $75 billion.

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