>Netflix shares fell only five percentage points this past week, even as the company’s key vulnerability was laid bare for investors—twice. Walt Disney, a vital source of Netflix content, said it will pull Disney and Pixar movies and shows after next year to start its own streaming service. And Facebook launched a video service with niche shows covering sports, cooking, reality contests, social-media celebrities, and more. For now, it’s far from a threat to the runaway leader in subscription streaming, but then, when Netflix was founded 20 years ago this month, it was far from a threat to Blockbuster.
>One of the all-time great story stocks, Netflix (ticker: NFLX) has a plot flaw, one that could cut its share price by more than half by the end of the decade. It is chiefly a hit-renter, not a hit-owner. Even among the expanding universe of Netflix Originals, top performers like House of Cards and Orange Is the New Black, which have both run for five seasons, are licensed, not owned. There is only one example of an owned Netflix hit reaching a second season—Stranger Things, which returns in October.
>There are two ways to accumulate owned hits: Make them or buy them. Both require copious amounts of cash, and Netflix is running low. This year, it expects to burn through $2 billion to $2.5 billion. That’s a remarkable acceleration from the $1.7 billion last year and just over $900 million the year before. For now, it is financing this spending with junk-rated debt. But its long-term debt stands at $4.8 billion.