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Netflix: a question of accounting methodology

Former hedge fund analyst Steve Clapham examines the tricky question of how to amortise streaming content
April 7, 2022

In the early 2000s, in one of my original attempts at angel investing, I was a partner in a UK clone of American DVD rental company, Netflix. We got off to a good start but needed more capital, which was harder to find back then. I persuaded Stelios Haji-Ioannou, the founder of budget airline easyJet, to inject additional capital, but the deal fell through. The business was eventually sold to LoveFilm before it was in turn bought by Amazon.

I should have just bought Netflix stock. It would have been easier and, had I held it, far more profitable. Today, I am a Netflix customer and a great admirer of Reed Hastings, the co-founder and chairman, but I have had differences with the company – and one of its major backers – over its accounting for content. I originally looked at this two years ago and think it is timely to revisit now that spending on content is increasing again.

I believe that Netflix has been becoming less conservative in its accounting for some time and that its method of amortising content could be inflating earnings.

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