The online streaming service Netflix is continuing to gain momentum with more people subscribing every day. According to analysts Citi Research, they are online to have 262 million subscriptions in the next decade and this would include 72 percent of the population of the United States.
At the moment, Netflix has approximately 11 million subscribers. However, analysts Hao Yan and Mark May have explained that at a high level, the price target of $305 million would imply that the streaming service can reasonably achieve around 262 million subscriptions over the next decade. Not only would this include 72 percent of the American market, it would also include a penetration of 37 percent of other developed markets and 21 percent of emerging markets.
Putting this level of penetration into monetary terms, this would give Netflix a global average of $19 per month for each user of the streaming service. However, Netflix cannot sit back and relax if they want to achieve these astronomic figures. The analysis has shown that to succeed in this, Netflix will have to continue to add content aggressively consistently for the next decade. This level of growth is reflected in the company’s costs of acquisition.
Citi Research has also analyzed Netflix’s predicted costs over the next year. According to their estimations, the service is likely to spend $14.7 billion in 2018. By 2019, their costs are predicted to rise to around $16.5 million before rising again in 2020 to $17.5 billion. These costs relate to what Netflix will spend on its acquisitions of new movies and television series. By 2028, this acquisition budget is expected to have risen to a figure in the region of $20 billion.
Although this means that the service is currently operating at a loss, the growing number of subscribers means that Netflix should have the ability to transform the net cash flow deficits into profits by as soon as 2021. Citi Research broke this down further by explaining that in 2018 they will see a cash flow deficit in the region of $ 3billion followed by a deficit of $2 billion in 2019. Things will then move forwards rapidly as it is expected that by 2022, Netflix will have a positive cash flow of $4 billion, rising in 2023 to around $6.3 billion and reaching $8.7 billion in 2024. The rise will not stop there if Citi Research’s estimates are correct as they believe that in 2028, Netflix will have a positive free cash flow of approximately $17.2 billion.
Despite dominating the online streaming service market, Netflix is not without its competitors. Some of these include Apple, Hulu, and Amazon. Furthermore, they receive direct competition from cable TV’s legacy video content players. Another competitor is YouTube, owned by Google. Each of these is within the increasing market of online content as more people are using the Internet as a method of entertainment as an alternative to shows on cable television networks.
This has been recognized by advertisers as they are also moving away from advertising on traditional television and focusing their marketing budgets on advertising with online content as a way of capturing the attention of their target market.