Analysis: 3 ways Netflix could fix its cash-flow problem

Fionn Whitehead stars in Netflix's choose-your-own-adventure story "Black Mirror: Bandersnatch." That kind of programming doesn't come cheap.
Fionn Whitehead stars in Netflix’s choose-your-own-adventure story “Black Mirror: Bandersnatch.” That kind of programming doesn’t come cheap.

While you spent the holidays streaming “Bird Box” and “Black Mirror: Bandersnatch” or re-watching “The Office” for the hundredth time, Netflix Inc. was playing out a corporate drama of its own: poaching Activision Blizzard Inc. Chief Financial Officer Spencer Neumann to be its new CFO.



Buzzy original thrillers like “Bird Box” and choose-your-own-adventure programs like “Bandersnatch” aren’t cheap. And as Netflix’s public profile has climbed, so have its losses. Analysts predict that the company will report about $3 billion in negative cash flow for 2018, up from $2 billion in the previous year. Fans of wildly expensive, high-quality television should hope the company can figure out its balance sheet.



Another, more untested path would be to cater more to active users over less engaged ones. This is where the company has a lot to learn from Activision and Walt Disney Co., Neumann’s former employers. Both of those companies — in very different ways — do a great job of charging different customers vastly disparate amounts of money for consuming their content. Disney doesn’t just charge you for a ticket to see a Star Wars movie. If you’re a superfan, you can buy action figures, go to a Disney theme park or watch the “Star Wars: The Clone Wars” TV series on Netflix. There are endless ways to upsell customers based on their affection for a particular piece of intellectual property.

The video game industry has a term for this: whales. Many companies make the bulk of their revenue from a relatively small group of people, and modern games are built to extract the maximum amount from those willing to pay. That means selling in-game loot boxes, virtual items and special game editions. Activision is also exploring e-sports to further monetize its popular titles.

Right now, Netflix charges most people the same amount, no matter how much they consume. Sure, you can pay slightly more for Netflix Ultra HD, but as the Disney and Activision examples illustrate, there are plenty of ways to charge more without metering content. Think elite movie packages akin to WarnerMedia’s HBO, merchandise tied to shows or some other version of in-app purchases.

A third path for improving cash flow would be to simply spend less money. This might seem like an appealing tactic for a new CFO, but the levers here are partly out of Netflix’s control. If you want to be a once-in-a-generation global media company, as Netflix does, then you need to work backward from there. Netflix needs to pay what it costs to hire talent.


Newcomer writes for Bloomberg.