Netflix content acquisition costs pose a challenge for global roll-out

DetailsMichelle Clancy | 10 February 2015

Netflix recently announced that it was forging ahead with a global roll-out in 200 countries in the next two years — but gaining access to compelling content in those markets could be a sticking point.

Analysts at MoffettNathanson said that the global licence fee structure that Netflix is taking to content creators only offers a 20-30% mark-up on the cost of show production. And that's a profit margin that falls below what many studios can command from more traditional distribution deals.

That's a problem for Netflix, whose content expenses last year totalled 59% of its revenue — far ahead of cable networks. As a comparison point, MoffettNathanson said that 21st Century Fox spends 45% of its revenue on content, while Disney spends 42% and Turner spends 41%.

Going forward, that percentage is set to worsen. The firm said that Netflix is estimated to have cash content acquisition costs of $4.3 billion in 2015, up 36% compared to 2014. Much of that will be a result of original content production as well: it plans to triple the number of original programming hours in 2015 to 320. Spending on originals increased from $133 million in 2013 to $243 million in 2014, and MoffettNathanson said that it would increase it further, to $450 million, in 2015.

In the end, it won't have a lot of leeway to sweeten the deal for the crucial acquired in-language content that it needs to successfully crack international markets, the analysts concluded, making the global roll-out something for shareholders to keep an eye on.