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Negative Free Cash Flow Will Be an Indicator of Enormous Success For Netflix, Says CEO (barrons.com)
During Netflix's quarterly earnings call, in which it noted it had added more than five million subscribers in the last three months, CEO Red Hastings was also asked about the millions of dollars it burns every quarter. Hastings said that burning cash is a sign of success, in a way. Here's the money quote: Look, when we produce an amazing show like Stranger Things, that's a lot of capital up front, and then you get a payout over many years. And seeing the positive returns on that for the business as a whole is what makes us comfortable that we should continue to invest and integrate to basically self-develop many more properties as Ted (the content head) can find the appropriate ones. And then there's comfort with being able to finance it, and of course, our debt-to-market cap is incredibly low and conservative, so we've got lots of room there. And I think that combination that it's spent well and we can raise it is what makes us very excited. And the irony is the faster that we grow and the faster we grow the owned originals, the more drawn on free cash flow that we'll be. So in some senses, negative free cash flow will be an indicator of enormous success. On Monday, Netflix updated its estimate for negative free cash flow for 2017. While previously the company had said it would be $2 billion, Netflix now says it will be $2 to $2.5 billion (versus $1.7 billion in 2016).
That statement makes no sense. He's saying his cash flow will be negative because they will be investing in new products. However, new products are not an indicator for success. Sales is!
One of our competitors trademarked the term "hypothesis". From now on, we will call them "boneheaded ideas".
Content costs something to produce once and the media companies milk it for ages to come. Thanks to copyright being extended essentially forever it's a great investment.
I think he's saying that spending money developing new shows is better than resting on their laurels and collecting cash.
If so he is saying very wrong. Investing in the future is a great way to ensure success in the future but it is by no means an indication or guarantee of success in the present or future. It's entirely possible to invest heavily and be an utter failure e.g. if they invested in shows which were complete flops. The fact that their CEO equates investment in the future to automatic success is not a healthy sign since it suggests they have not planned for what happens if the investments go awry.
He is doing his job convincing people there is value created in all those properties. As long as the investors buy that story, it is all hunky-dory.
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact