Netflix still spends a small fortune on content. But relatively speaking, the streamer in 2022 kept a lid on payments for TV shows and movies — underscoring that the days of runaway spending on programming are behind it.
Last year, the streamer paid out $16.7 billion on a cash basis for content, which was 4.6% less than in 2021, when it shelled out $17.5 billion, according to Netflix’s financial statements released Thursday for its fourth-quarter earnings report.
Netflix’s content obligations — payments for the acquisition, licensing and production of content over multiyear periods — also declined last year, dropping 5.7%, from $23.16 billion to $21.83 billion.
The steady-state in content spending, along with other cost reductions (including layoffs and slower hiring), led Netflix to project a “sustained” trajectory of growth in free cash flow. “Now that we are a decade into our original programming initiative and have successfully scaled it, we are past the most cash-intensive phase of this buildout,” Netflix said in its Q4 2022 letter to shareholders. “As a result, we believe we will now be generating sustained, positive annual free cash flow going forward.”
Netflix’s cash spending on content fell in 2020, when the COVID pandemic slammed the brakes on productions around the world, coming in at $12.5 billion that year (vs. $14.6 billion in 2019). But aside from that, its content spending has grown significantly every other year over the last decade, jumping 9.5 times from 2012 ($1.75 billion in cash content spending) to 2022.
In 2022, Netflix reported free cash flow of about $1.6 billion — $1 billion higher than it previously forecast — compared with negative FCF the prior year of -$159 million. In 2023, assuming “no material swings” in currency exchange rates, the company expects at least $3 billion of free cash flow.
At the same time, Netflix boasted that the Q4 content slate “outperformed even our high expectations.” That includes the Addams Family series “Wednesday,” which became its third most popular TV series to date; “Harry & Meghan,” its second most popular docu-series; Norwegian action-fantasy-adventure film “Troll,” its most popular non-English film; and “Glass Onion: A Knives Out Mystery,” its fourth most popular film. (All of those rankings are based on viewing hours in the first 28 days of release.)
Ted Sarandos, Netflix’s co-CEO alongside newly promoted co-chief Greg Peters, speaking on the Q4 earnings interview, boasted of the regular cadence of must-see TV shows and movies from the company.
Nearly without pausing for a breath, Sarandos cited a string of popular titles starting with “Stranger Things 4” last July, continuing to “Sea Beast,” its biggest animated film ever, “Purple Hearts” and “Gray Man,” two of Netflix’s most-watched films ever on Netflix. Those were followed by “The Sandman,” “Never Have I Ever” Season 3, “Cobra Kai” Season 5, “Empress,” “Cyberpunk,” “Narco-Saints,” Ryan Murphy’s “Monster: The Jeffrey Dahmer Story” and “Watcher,” “All Quiet on the Western Front,” “Enola Holmes 2” with Millie Bobby Brown, and later in January “You People,” starring Eddie Murphy and Jonah Hill.
“Any outlet would kill to have any one of those months as their entire year,” Sarandos said. “And it’s our ability to fire on those cylinders and create hits, but more than that, create the expectation that, as soon as you’re done with this one, there’s another one waiting for you.”
What’s key for Netflix at this point vis-à-vis content spending: It’s staying out of the super-pricey world of premium sports rights, so it doesn’t blow an NFL-size hole in the budget. On the Q4 interview Thursday, Sarandos was asked yet again about Netflix’s interest in sports. He reiterated that “our position has been the same, which is we’re not anti-sports, we’re pro-profits” — repeating a line he’s used recently — “and we have not been able to figure out how to deliver profits in renting big league sports in our subscription model.”
In Q4, Netflix operating income was above expectations (although it was lower than in the same period in 2021), which the company chalked up to slower-than-forecasted hiring.
CFO Spencer Neumann said on the earnings interview that Netflix is “continuing to manage our cost structure with increasing discipline. You saw that in the back half of ’22 with our slowing expense growth, and we’ll carry that through similarly in ’23.”
Pictured above: Jenna Ortega in Netflix’s “Wednesday”
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