Netflix's Stock Spikes, But Will the Company Even Exist In 2016?
Starz has the Disney movie deal through 2015. Come 2016, Netflix gets first crack to air movies roughly six to seven months after they leave the big screen. This has never happened before with Netflix -- it lands an exclusive deal for first-run material, beating out traditional outlets such as Starz and Time Warner's (TWX) HBO.
But consider this within the context of Netflix.
Since early 2011, I have warned about Netflix's debt load. It pays a ton of money for content -- as of its last quarterly report, the company reports about $5 billion in off-balance sheet obligations, including roughly $2 billion due within a year.
Netflix absolutely had to pay dearly for the Disney rights. That's what the big content owners do. They have all of the leverage in relationships with middlemen -- glorified bootleggers such as Netflix -- and they slap them around in the process. Netflix needs this content, and Disney extracts every last drop. Netflix pays, the debt situation never gets better.
It's the same old story. Whenever it appears that Netflix maneuvered out of its death spiral, something like this happens.
Without massive domestic and international subscriber growth and, ideally, new lines of revenue, this could end up bad news greeted as good by opportunistic traders and the stragglers in the Netflix bullish gaggle.
The 2016 part of this deal means nothing if Netflix is (A) no longer around or (B) cannot make good on its financial obligations with Disney. That's a real concern.
Bet the farm on the obvious: Disney has itself more than covered contractually in the event Netflix dies or is in a world of hurt between now and 2016.
--Written by Rocco Pendola in Santa Monica, Calif.