Netflix is keeping its foot pressed firmly on the gas pedal in the streaming-video road race.
The streamer will invest around $17.3 billion this year in content on a cash basis, according to a new forecast by Wall Street firm BMO Capital Markets. That’s up from around $15.3 billion in 2019. And Netflix is not expected to ease up anytime soon: Its content spending will top $26 billion by 2028, per BMO’s report. On an amortized P&L expenditure basis, Netflix’s content spending will be about $11.1 billion in 2020, the analyst firm predicts.
The forecast comes ahead of Netflix’s scheduled fourth-quarter 2019 earnings report on Tuesday, Jan. 21, after market close. Investors will be reading the tea leaves for how Disney Plus and Apple TV Plus, among the first entrants in a new wave of new subscription VOD rivals, affected Netflix’s subscriber growth in the year-end period.
“We continue to believe the ‘streaming wars’ narrative is false and there will be multiple winners in global streaming,” BMO’s Dan Salmon wrote in the research note. The analyst continues to maintain “buy” ratings on the stocks of Netflix, Amazon and Disney together.
For Q4, Netflix is expected to turn in “a solid quarter,” Cowen & Co. analyst John Blackledge wrote in a note Thursday. In the year-end period, Netflix debuted a record 802 hours of original programming (up 3% year-over-year), including Oscar contenders “The Irishman” and “Marriage Story.”
The effect of Disney Plus on Netflix’s U.S. subscriber churn “will be manageable” relative to previous guidance, Blackledge added: “We continue to believe Netflix will hit or exceed its U.S. paid net add guide.” He also pointed to Cowen’s December 2019 U.S. survey finding Netflix continues to be the top pick when consumers were asked which platform they use the most to view content on TVs: Netflix led with 25% of total respondents, followed by basic cable (18%), broadcast (17%) and YouTube (13%).
Most of Netflix’s content budget for 2020 and beyond will be on originals, according to BMO. Recently announced projects include Netflix’s multi-year pact with Nickelodeon for animated originals; a multiyear film and TV deal with “Game of Thrones” duo David Benioff and Dan Weiss; and a three-year deal with South Korean media conglomerate CJ ENM’s Studio Dragon for originals and licensed titles as well as a pact with Korean producer JTBC Content Hub. Salmon called the Korea content deals “a stepping stone to scaling subs in one of [the Asia Pacific region’s] wealthiest and largest addressable markets.”
For context, Netflix’s overall content spending is significantly higher than what big media conglomerates have told Wall Street they’re going to plow into their own streaming initiatives. In fiscal 2020, Disney has said it will spend $1 billion on original programming for Disney Plus and will have nearly $1 billion in operating expenses. According to AT&T, WarnerMedia will invest up to $2 billion in HBO Max in 2020, while Comcast/NBCUniversal has earmarked about $2 billion for Peacock in the service’s first two years.
To help fund that content budget, Netflix has about $14.6 billion in long-term debt on the books, after issuing around $2.2 billion in junk bonds last fall. The company also had $19.1 billion in content spending obligations — in other words, IOUs to content suppliers — as of Sept. 30, 2019, including $10.8 billion not reflected on its balance sheets.