It’s been a staple of streaming to not have to watch advertisements while you’re trying to binge the latest show as your friends are starting to suspect you of scrublordery. When Hulu, one of the last hold outs offered for a small amount an ad free version of their subscription 30% of their audience jumped at the opportunity to no longer have to put up with advertisements.
Netflix has begun testing the waters to see how many subscribers they could maintain if they interjected advertisements into their service. CNBC reports the outlet could lose 23% of its market if it attempts to do so according to the latest survey. It is important to keep in mind the Hub Entertainment Research study only interviewed 1,765 Netflix users. The figure could be in fact drastically higher or drastically lower than the findings.
For $12.99 in the standard plan to $15.99 nearly $16 for the premium the interjection of advertisement will probably be disastrous. That early figure for Hulu where 70% of users are willing to put up with ads in comparison only charges $5.99 for its advertisement plan.
Why does Netflix even need to add advertisers in the first place when they are reportedly more successful than ever? Despite claims of user growth the company actually continues to lose money year over year. Right now the company sits at $12.43 Billion in debt, which they’ve financed through Junk Bonds.
Being $12.43 billion in debt it is highly unlikely the self proclaimed propaganda outlet will be able to payback any of the bonds as they mature (maturation means the bonds have reach an age where they can be cashed in for a specified amount).
Netflix’s Payment obligations look like this: $200 million dollars in bonds issued 2011 matured in 2018, which didn’t have interest, but could be converted for a set number of shares generating interest by proxy. Followed by the 2013 $500 million with interest set to mature in 2021, $400 million set to mature in 2024 at 5.75% interest, $1.9 Billion set to mature in 2028 at 5.875% interest, $1.34 Billion set to mature in 2029 at 3.875% interest with an additional $900 million set to mature the same year at 3.395% interest.
All while operating a $15 billion dollar budget for 2019 with costs projected to continue to grow larger for the original content going forward. At this juncture Netflix as a business has one of two options: Either make more money, which they’re eyeballing through the introduction of advertisements, or spend less money which would mean less original shows. If the company was operating like a business and not a propaganda outlet then this would mean the company would produce fewer shows, but more in demand shows.
Right now operations revenue should cover the 2021 payment, but it will become increasingly difficult to attempt to take on more debt through unregulated bond issuance. Netflix is eventually going to go bankrupt; there is no manner by which it can get around its debt load with ballooning costs that only produce diminishing returns in additional revenue generation year over year. If it chooses to launch advertisements without adjusting their rates, that bankruptcy will be sooner rather than later.
