Amazon vs. Netflix: Jeff Bezos Could Squash Reed Hastings Like a Bug
Hastings likes to make you believe his company operates from a position of strength. He uses all sorts of smoke and mirrors to do it , but, ultimately, Netflix cannot continue to finance its admirable content acquisition, original programming and international expansion efforts by refinancing and taking out debt.
It will catch up with the company. When it does, the business -- as powerful and impressive as it is as a consumer service -- will crash like (no pun intended) a "House of Cards" .
I watched the first episode of "House of Cards" over the weekend. It's good enough that I will be back at some point this week or over the weekend for another episode or two. At this point, however, it's not what it needs to be for Netflix; it's not of HBO quality.
I'm no television critic, but it seems to me the people who produced "House of Cards" for Netflix are not masters of the art of weaving together a compelling storyline in an hour, yet making it believable. That's what HBO does so well.
But that's beside the point. Even if "House of Cards" kills it, Netflix needs to kill it again and again and yet again to even place itself in the same league as HBO. That's next to impossible.
If Netflix manages to accomplish this, there's no guarantee it will matter. You're still giving away all of your programming -- original or third-party -- at the bargain price of $8/month. When subscription fees comprise your only line of revenue in a business that burns cash like there's no tomorrow, things simply cannot end well without considerable and, quite possibly, unworkable structural change.
The existence of giants such as Amazon as streaming/on-demand middlemen -- not to mention Apple (AAPL) and Google (GOOG) -- makes things even more complicated. These guys have cash cows in place to subsidize something like an expensive streaming operation; Netflix absolutely does not.
Consider what Netflix is up against. At the beginning of 2012, the company had about $508 million in cash and cash equivalents. At the end of 2013, it was down to just over $290 million. As I explain in the article I link to in the second paragraph of this piece, we're seeing a repeat of late 2011. Netflix is taking out more debt to beef up its weak cash pile. Therefore, it will likely have something closer to $700 million by the end of Q1 or Q2.