Netflix has established itself as a leader in the online entertainment space, offering a huge library of streaming content for a very reasonable monthly subscription fee. Netflix has also become a leader in original programming, offering fantastic in-house content on par with shows from top networks, and it cannot be seen anywhere else.
As it turns out, however, the costs of that content and expansion may ultimately be a huge test for the company, as it may be forced to increase its prices in the near future.
Martin Sorrell is the chief executive at WPP, one of the largest advertising and public relations companies in the world. During The Financial Times’ FT Digital Media conference on Tuesday, Sorrell addressed some questions regarding Netflix, and his thoughts on the state of the company’s business were quite interesting.
“Netflix is extremely powerful yet it has not yet achieved profitability — that old-fashioned thing that, at the end of the day, we are all interested in, in the long run,” Sorrell said when discussing Netflix’s recent earnings report, Business Insider reports.
The executive noted that Netflix’s costs are huge, and at some point the company is going to have to make some changes if it hopes to maintain growth while continuing to expand and release good original content.
“In those circumstances, it will have to raise its subscription prices — and you can remember what the reaction was like to that last time around — or have an alternative revenue generation operation, one of which will be advertising,” Sorrell said.
The executive also noted that Netflix’s continued success, and the rise of similar platforms, will come at the expense of traditional TV networks.