A recent Los Angeles Times report quantified a specific point that comes up in just about any conversation surrounding the future of the film and TV industries: Netflix is built atop a whole bunch of debt. The report estimated that Netflix's debt is around $20 billion, a stunning total for any one entertainment company.
But it's not uncommon for studios to run a deficit while producing any given project, whether it's a TV show or a film.
For most of television history, the conventional wisdom was that a studio would lose money on a TV show until it was sold into syndication — usually at the end of season four — and the studio could start to recoup its investment. The network that aired the TV show made money off it by selling ad revenue, but it was not necessarily obligated to share that ad revenue with the studio that actually made the show, because the rerun market was considered so lucrative (as long as the show lasted long enough to enter it). Now studios can make their money back more quickly, via selling of international rights, streaming rights, and other forms of ancillary revenue, but running up a debt on early seasons of a TV show is still common.
Movies, meanwhile, are produced and sold before they ever make any money at the box office, which means that even a moderately successful film can lose money if it's not budgeted properly. And studios are frequently accused of creative accounting, in which they allege that they just barely broke even on hits, in order to avoid further payouts to members of the creative team who may be entitled to a portion of post-release profits.
So there are plenty of ways to lose money in Hollywood — especially when you're building a new studio or entertainment brand. But it still takes a total boondoggle to completely lose your shirt, especially in television, where a single Friends can keep raking in cash for decades after it leaves the air.
The larger point is that Netflix running up a debt isn't all that odd; indeed, if it were the sole issue here, nobody would bat an eye. Instead, the factor that's spurred so much discussion and consternation is the size of Netflix's debt, and the fact that the company has only recently seemed to show an interest in reining in its spending, by canceling a handful of underperforming shows (only to turn right around and sign blockbuster deals with Shonda Rhimes, among others).
Netflix, like many companies in the tech industry, is funded by venture capital, which allows it to continue spending money in an effort to someday become a stable, profitable corporate monolith. But such an outcome is by no means a guarantee. Placate venture capitalists, and they'll extend what might seem like an infinite line of credit. After all, Amazon famously didn't turn a profit for most of its first two decades, and it continues to expand the lines of business it enters.
The concern is that if Netflix and Amazon aren't necessarily bound by the need to erase or lower their debt, but more conventional TV networks are, then Netflix and Amazon aren't really building TV networks. Instead, they're building alternate distribution channels that might eventually forgo the existing entertainment industry entirely, in favor of operating within the tech industry. If you look at it this way, as many in show business do, you can see the makings of a battle that isn't between, say, Netflix and HBO, but between two massive industries. And it's easy to see why those who work in TV and film fear that such a conflict could be detrimental to their continued existence.