The Trouble With Netflix..

..Has been their business model relying on borrowing against future subscriber revenues. CNN business has a good synopsis of how critical this week’s earnings report will be for the company.

Unlike their studio-backed competitors Netflix started with less than a decade of content they actually owned, and they lost a lot of their most popular content when studios clawed back the streaming rights.

Retention, therefore, is key to maintain the company’s value. And to retain they need a constant stream of quality content. But to get more content they need to borrow more money against future revenues.

Given the company has reached a critical mass with hundreds of millions of customers, it’s hard to grow the revenue without raising prices. Which they did multiple times. But now the subscribers are leaving because it’s too expensive.

Netflix is not a takeover target, yet. But they’re going to have a hard time competing against studio streaming services that cost less with much deeper catalogs of IP.