Netflix still spends a small fortune on content. But relatively speaking, the streamer has tightened the purse strings in 2022 – underscoring the days of runaway spending on programming behind it.
Last year, the streamer paid $16.84 billion on a cash basis for content, down 4.9% from 2021, when it spent $17.70 billion, according to financial statements released Thursday for Netflix’s fourth-quarter earnings report.
Netflix’s content obligations — payments for the acquisition, licensing and production of content over many years — also fell 5.7% last year, from $23.16 billion to $21.83 billion.
The steady state of content spending, along with other cost reductions (including layoffs and slower hiring), has led Netflix to project a “sustainable” trajectory of growth in free cash flow.
“Now that we’re a decade into our core programming initiative and have successfully scaled it, we’ve passed the most cash-intensive phase of this buildout,” Netflix said in its Q4 2022 letter to shareholders. “As a result, we believe we will now generate sustainable, positive annual free cash flow.”
In 2022, Netflix reports free cash flow of about $1.6 billion — $1 billion more than previously forecast. In 2021, its FCF was negative, coming in at -$159 million. In 2023, assuming “no material change” in currency exchange rates, the company expects free cash flow of at least $3 billion.
At the same time, Netflix boasted that the Q4 content slate “exceeded even our lofty expectations.” which included the Addams Family series “Wednesday” which became the third most popular TV series of all time; “Harry and Meghan”, its second popular docu-series; the Norwegian action-fantasy-adventure film “Troll”, its most popular non-English film; and “Glass Onion: A Knives Out Mystery,” its fourth most popular film. (All of these rankings are based on viewing hours in the first 28 days of publication.)
Ted Sarandos, Netflix’s co-CEO with newly promoted co-head Greg Peters, spoke in the Q4 earnings interview, proud of the company’s regular TV shows and movies.
Almost without taking a breath, Sarandos cited a string of popular titles that began with “Stranger Things 4” last July, followed by “Sea Beast,” its biggest animated film of all time, “Purple Hearts” and “Grey Men,” two of Netflix’s . Most watched movies on Netflix of all time. These were followed by “The Sandman,” “Never Have I Ever” Season 3, “Cobra Kai” Season 5, “Empress,” “Cyberpunk,” “Narco-Saints,” Ryan Murphy’s “Monster: The Jeffrey Dahmer Story” and “ Watcher,” “All Quiet on the Western Front,” “Enola Homes 2” with Millie Bobby Brown and later in January “You People” starring Eddie Murphy and Jonah Hill.
“Any outlet would kill any one of those months as their whole year,” Sarandos said. “And it’s our ability to fire on those cylinders and create hits, but more than that, create the expectation that, as soon as you get it done, there’s another one waiting for you.”
What’s important about content spending for Netflix right now: It stays out of the super-pricey world of premium sports rights, so it doesn’t blow an NFL-sized hole in the budget. In Thursday’s Q4 interview, Sarandos was once again asked about Netflix’s interest in the game. He reiterated that “our position was the same, which is we’re not anti-sports, we’re pro-profit” — repeating a line he’s used recently — “and we couldn’t figure out how to deliver a profit in our subscription model of renting big league sports.” for.”
In Q4, Netflix operating income was higher than expected due to slower-than-forecast hiring (although it was down from the same period in 2021). CFO Spencer Newman said in the earnings interview that Netflix “continues to manage our cost structure with increasing discipline. You saw that with our slower spending growth in the back half of ’22, and we’ll carry that over into ’23 as well.
Pictured above: Jenna Ortega in Netflix’s “Wednesday.”