Netflix model ‘unsustainable’28 November 2016
Research house Ovum has said that Netflix’s business model is unsustainable and its content spend is ‘out of control’.
Ovum claimed that the SVoD service is investing in content in a way that ‘flatters its weakening profitability’.
Netflix stated last month it was raising an additional $1 billion to spend on content, as its annual content spend heads for $6 billion.
Ovum went on to say that Netflix had adopted a host of ‘very aggressive content accounting assumptions’ that seek to paper over the ‘deteriorating business economics’, and that it is ‘spending beyond its means.’
Ovum’s Angel Dobardziev said, “Netflix’s current business model burns massive and increasing amounts of cash, which we think is not sustainable. We think Netflix will find it near impossible to maintain its subscriber growth while at the same time keeping tight control of the costs that are driving its cash burn.
“The exuberance surrounding Netflix has parallels with the dot.com boom, when tech companies with lots of users – ‘eyeballs’ – and no profits were reaching stratospheric valuations.
“It has to spend vastly increasing amounts of cash on producing original content amid a very competitive content production and licensing market, but is unable to raise prices sufficiently to make meaningful profits due to intensifying competition.”