What Will Netflix Look Like in Five Years?

Netflix. I know what you’re thinking. The streaming platform is pretty much a staple of everyone’s life, whether we go out of our way to make time for it or it goes out of its way to make time for us. Season 2 of Stranger Things was a critical and commercial triumph, but what exactly does the popular streaming platform’s future look like? Notorious for its highly confidential analytics and secretive success ratings, it’s impossible to predict with certainty how Netflix operates as a company. But we can sure as hell try.

With its easily accessible variety of TV shows and films, Netflix as a brand has woven itself into our everyday lives, so much so that many of us find ourselves accidentally typing “Netflix” into our search bars when we’re supposed to be researching articles for a paper that’s due the next day (I know I have on more than one occasion). With a few simple calculations based on their 42.5 billion hours of streamed programming and 75 million subscribers in 2015, TIME Magazine uncovered that subscribers spent an average of 1 hour and 33 minutes per day streaming Netflix’s content. That was two years ago.

Billions, baby, billions

Fast forward to 2017; Netflix has surpassed 100 million subscribers around the world. In 2018, they plan to spend a budget of roughly 8 billion US dollars developing and producing content. Their chief of content, Ted Sarandos, announced a total of 80 original Netflix films to be released in 2018, which means about three new, original films every two weeks. These numbers don’t even include original series, of which Netflix has already announced dozens. Not to mention they signed a five-year deal with big-name writer and producer Shonda Rhimes (Grey’s Anatomy, Scandal), as well as other household names including Jerry Seinfeld, David Letterman, the Coen Brothers and Steven Soderbergh.

But with big expansions come big fees. Did I mention Netflix is 20 billion dollars in debt? Once again, yes, that’s “billion” with a “b”. But even though Netflix burns through cash faster than we can consume its content, its stock price is the highest it’s ever been and projections suggest continued growth of their subscriber base and revenues.

As of January 2016, Netflix became available in virtually every country in the world except China, which they hope to eventually move into. They announced their strategy to move into 130 new countries at the same time at an immense tech industry press conference in Las Vegas, and have since been placing a large focus on their international audiences. For example, Netflix announced they will be producing a total of 30 new anime shows, not just for American fan bases, but for global distribution. With these international ventures in mind, let’s talk about what this means for our home country.

The 500 million dollar deal

In late September, Netflix announced it would spend 400 million USD (or 500 million CDN) on the production of Canadian content to compensate for the huge tax break they get here in the Great White North. While any other company operating in Canada is charged a corporate tax, as well as a sales tax, Netflix has lobbied hard to pay neither, successfully dodging some pretty massive fees.

You may recognise the name Mélanie Joly from recommended articles on social media – or perhaps you’ve filtered her out altogether, but the Canadian Minister for Heritage has been saying some interesting albeit vague things concerning Canada’s new culture policy plan. To highlight a few of her hopes for this deal: more Canadians will be hired and Canadian content will gain exposure on a global platform, which could boost Canada’s reputation as content creators and spark future investment in our film and television industries. This all sounds fantastic, for creators and patriotic consumers alike.

However, we are essentially paying for an American company to create Canadian content and own the exclusive, global distribution rights. That means it won’t be the Canadian production companies getting recognition and compensation for new Canadian programming, Netflix is the one who will end up raking in the big bucks.

If you’ve noticed a slight price increase in your Netflix subscription, it is no mere coincidence. Just a few months ago, Netflix raised each of its three subscription plans by $1. I know most of us haven’t done math since high school, but let’s take a quick look at a few numbers. According to Toronto-based Solutions Research Group, Netflix had more than 5.2 million Canadian subscribers in April of 2016 and were expected to grow at an average of 100,000 subscribers per month. So here we are, 21 months later, at an approximate Canadian subscriber base of seven million.

 
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The biggest takeaway from all these numbers is that the $1 price increase in our monthly subscription fees adds up to about $420 million. This means that we are essentially self-funding this $500 million investment deal. A pretty great deal – for Netflix, don’t you think?

Of the approximate $4.5 billion in revenue Netflix will make from Canada over the next 5 years, which doesn’t even account for additional subscriber growth, they are only willing to invest 500 million CDN back into Canadian programming. Next to Netflix’s projections to spend 8 billion in 2018 alone, 500 million over five years is nothing.

The government and regulators alike have tossed around the idea of taxing Netflix for years, both in terms of corporate and sales tax. On January 16 of this new year, the Coalition for Culture and Media, comprised of 45 Canadian media organisations including ACTRA and the Directors Guild of Canada, released a statement demanding the government to reconsider a Netflix tax. Financial experts have calculated that hundreds of millions could be gained over the next few years from the e-commerce taxes Netflix would be required to pay, which could be going to the Canadian government to invest in programming ourselves. Instead, Netflix is offering 500 million dollars and taking complete ownership of all rights for the content it produces “for” Canada.

Long-term effects

Long story short, yes, it is possible that this deal could facilitate job growth for Canadian production companies, so for those of you looking to make in-roads in the television or media industry, this could be the silver lining you’ve all been waiting for. It’s also possible that the exposure of Canadian content on a global platform could boost our reputation when it comes to content creation. But what we also must understand is that Canada will never match the United States when it comes financial domination in the industry of entertainment. Our population is but a tenth of the size and we can’t afford to spend millions on a show’s pilot that will never even air. Only time will tell how this deal will turn out – it could have a seismic impact or end up as all thunder and no lightning.

While many pundits like to speculate that Netflix will become irrelevant in the years to come, or even be prone to a hostile takeover, others believe that the behemoth will continue to thrive as a video streaming service titan. With deals like the one with Canada, my guess is all for the latter.