netflix is having a bad week; it lost 200k subscribers in Q11 and is planning to end account sharing over the next year or so2, which they say will boost revenue but :/ could also go like the 2011 hike3 (unanimous outrage).

netflix is technically profitable. They reported4 5.1 billion dollars in net income in 2021 on 29.7b revenue. They also spent 17.7b on content, but amortized 12.2b of that. Without the amortization, they would have lost 7b. Maybe increasing content spend is justified by growth? They grew from 30m to 220m subscribers from 2013-2021, which isn’t nothing, but the streaming landscape is a dark forest post 2020. Growth and retention will get harder. Also they don’t pay taxes5 (but who would).

Is netflix defrauding investors with froggy accounting? Are they creating really nice consumer experiences, and cushy offices where developers get paid to work on resume-builder OSS projects6, and exits for early investors and equity participants, on a model where unit economics are eternally and hopelessly negative?

Did moviepass defraud investors? Investors allege yes7 (but they would). I’ve heard anecdotally that management wanted to launch with lower subsidies, and one of their investors was like ‘no, go big’, which is to say the board was complicit. I’m not sure which narrative is right.

(I never had moviepass. You’d have to pay my hourly rate to get me to sit through a movie. I’m told the hobbit movie is 8 hours long and doesn’t feature tom bombadil8. This surpasses understanding).

This post is about netflix accounting, incidentally about uber accounting because uber is in similar slow trouble, incidentally about subsidy + collapse in the roman empire, and whether these many implosions indicate a systemic problem in how we finance growth.

  1. why fraud when you can gaap
  2. bread, games and involution
  3. do all good products defraud investors?

why fraud when you can gaap

Fraud of course has multiple elements and one of them is ‘did the alleged fraudster know they were lying’. My take: probably not at first? uber launched as a competitor to black cars, not taxis. netflix mailed people DVDs. Over time they developed these businesses into frictionless, but also moatless, models9, and got cloned by companies who could operate them more cheaply.

Content, with the possible exception of fleabag season 2, isn’t a moat in the infinite content world.

Another element of fraud is ‘did the victim not know it was a lie’, were they actually fooled. This one is harder because there have been voices saying ‘if you do your diligence, it’s obvious that these aren’t working’. Hubert Horan is N years into a series of articles where he personally adjusts uber’s gaap down10 when they do an earnings statement.

When wework’s S-1 came out, beyond the nutty softbank battle about whether to IPO + what price, they were panned for some bananas accounting term that they made up11.

netflix depreciates their content on a varying calendar; originals mostly 4 years, chelsea handler right away12. Perhaps 4 years is justified by real subscriber behavior. If not, netflix is in the same business as moviepass; borrowing money to buy content at retail prices, then sell at a discount.

The effect of content on retention is probably mediated by whether competing streaming services are also adding good content. Their competition, btw, is amazon, which uses free videos to sell scammy prime13, and apple, which has more cash than god and which kept 30% of netflix’s itunes revenue until 201814. Choose your fighter.

bread, games and involution

When things are artifically cheap I think of ‘panem et circenses’, a contemporary critique by a poet15 of the politicization of ancient Rome’s grain dole, named ‘annona’ after the roman goddess of corn and, I shit you not, the grain supply. Her symbols were a cornucopia and a boat.

Subsidies, like ‘community EBITDA’, are an accounting hack, and can ruin your IPO or worse. The Romain grain subsidies were a factor in the end of the republic and the birth of the empire. Later, in the 200s AD, they caused a currency crisis, which was resolved by Diocletian’s price controls but not before the empire split in half.

(FWIW I’m not saying societies in 2022 shouldn’t feed everyone; unlike the Romans, grain isn’t our whole economy).

Subsidies are politically weird, or get weird if they don’t start out that way. Tacitus wrote that the lower classes had no public interest save the grain supply. The dole was initially for laborers and slaves, aka non-citizens who lacked steady income.16 (Ironic, isn’t it, that they structured their system to remove a group from political life, and the economic needs of that group ended up blowing up the system).

Caesar as consul changed it from cheap to free17, a bribe to the people which enabled him to become dictator. I lost the cite for this (firefox crashed), but the full subsidies warped the local economy such that local farmers shut down their farms, moving to the city to receive the dole. ‘We’re too rich to make things here’ is a definition of ‘rich’ that plagues undiversified economies.

Rome got into this mess because of a side effect of urbanization and density: city dwellers are located far from their supply chain. Plus other large capitals back then were nearish their grain supply16, while Rome relied on shipping. Once the annona was in place, Rome’s subsequent population growth was built on top of it; the larger the population, the larger the disaster of removing it, and the larger the military network required to send home grain.

I’m not a china watcher but I read something18 about ‘involution’, an econ term describing growth through the intensification of labor. Online people have adopted it to describe 2020s china. I wonder if it applies to bread-and-games era Rome as well – more and more labor being tasked with securing the grain supply, without new innovations that increase the yield19. I wonder if netflix and uber are in an involution spiral, growth depending on more intensive ‘farming’ of investors, contractors, employees, and customers.

I’m not saying the millennial lifestyle subsidy20 will end our republic. I’m not saying shortages in long-distance supply chains are the same problem in 2022 as for Tertullus in 359 (who had to promise to starve his kids if storms destroyed the grain ships). I’m not saying that WSB / gamestop are signs of decay. I’m not saying that our class structure is as broken as the city of Rome, or that Rome’s was broken for its era, or that removing voting sites in poor districts in the US is equivalent to Rome’s non-citizen class.

I’m not qualified to say these things. But I’m thinking them.

A less crazy take here is that we should, as a society, ask participants in the public markets to issue accurate accounting. Arthur Andersen was a big 5 accounting firm, so it’s not like this stuff is zero consequence, but let’s normalize good accounting.

In the case of uber and netflix, ‘collapse’ so far has meant increasing prices, because investor money is more finite than state coffers. Maybe this is how bubbles pop, and private money has a working safety valve, and the system isn’t doomed? It has also meant squeezing drivers.

do all good products defraud investors?

Maybe! Even if some bootstrapped investor starts a company with sane cost controls and accounting, the moment their model is validated, it’s open season for the series As to ‘growth hack’, aka sell the same good at a loss. We’re somehow okay with companies giving stuff away to induce subscriptions, even though we’re not okay with elected officials giving things away to become dictators.

This is probably a governance problem. I don’t know the answer (as usual), and I don’t even think I know the answer (less common). Maybe you’re not allowed to operate a money-losing business? But that’s tricky too – R&D is money-losing.

And governance can be hacked: health care in the US is one large accounting problem, and is heavily regulated, but the industry has become sentient faster than regulators and is resisting our attempts to exorcise it. Like grain in Rome, health is a large % of our GDP, and giant entitlement programs can find the resonant frequencies of political institutions, shattering them if not damped.

Random example from a month ago: HR 6833 (‘affordable insulin now’ act) lowers prices to consumers without changing the price paid to suppliers. Someone in the floor debate said this just shifts costs to insurers, ultimately increasing consumer premiums21, i.e. the bill is an accounting scam. That’s just one recent example; every health interaction I’ve ever had has had some accounting irregularity.

Health care providers have engaged in regulatory capture such that the rules protect the system in its current form. (And rules that can reform the system, like medicare’s price transparency change, are ignored22). Tons of public money is being diverted to maintain it, as well as pseudo-public money like pre-tax employer coverage.

netflix, uber, and US health care are all markets that have been parasitized23 by weird unnecessary intermediaries. Maybe we ban subscriptions and force platforms to sell things one by one. Maybe we ‘make markets markets’, restricting the role of platform-like creatures who don’t seem to add value. Maybe we nationalize all 3 on the same day.

But ‘more rules’ hasn’t solved the problem so far.

Maybe new values would? But public values are almost religions. Is there a viable religion of ‘don’t buy cheap stuff’? What commandments are violated by the millennial lifestyle subsidy? What myths would remind us to fear Danaans, even those bearing gifts. Did moviepass defraud investors, or is the system to blame. Or are bezzles, like wars, the mother of innovation, and the way to have nice things is always through bankrupting our republic.


  1. reuters subscribers fall forecasts grim 4/19 

  2. cnbc something netflix account sharing 4/23 

  3. The Complete History of Netflix Price Hikes – From 2007 to 2019 Alex Munkachy, citing wired in the 2011 section 

  4. ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021. PDF page 43 (marked as page 41, which is a numeric crime but not the worst one in there). Later in the doc: “Net cash provided by operating activities decreased $2,034 million from the year ended December 31, 2020 to $393 million for the year ended December 31, 2021 primarily driven by an increase in investments in content that require more upfront cash payments, partially offset by a $4,702 million or 19% increase in revenues.” 

  5. record 5.3b profit on tax rate 1.1% institute on taxation + economic policy 

  6. matt turck vc pullback letter talks about netflix employees ditching to run their OSS projects as companies. netflix doesn’t own a piece of the action. ctrl-F for ‘open source projects’ 

  7. MoviePass Parent Company Sued by Shareholders as It Continues to Bleed Money. “Defendants carried out a plan, scheme and course of conduct which was intended to, and did, deceive the investing public and cause the plaintiff and other members of the class to purchase” etc 🎻 

  8. oldest and fatherless his terrible secret 

  9. 7 powers guy on acquired pod. business author who writes about competition thinks uber doesn’t have a moat. Find the ‘network effects’ paragraph that talks about ‘meaningful profitability’. IMO this is a right take on uber + all gig businesses – creating a gig labor force is hard, stealing one that has already been created is easy. The whole point of gig labor is low barrier to entry and part-time-ness. Exclusivity is anathema. 

  10. part 29 in a series by hubert horan, 40 yrs experience. he thinks uber overstated profit by 3.2b in 2021 and has lost a total of 30 billion dollars over the lifetime of their company. I’m not an accountant and don’t know how to extract data tables from PDFs and am not endorsing this view 

  11. community adjusted ebitda. I’m not an accountant but my understanding is this is ebitda but also not including expenses 

  12. netflix content accounting, motley fool, Adam Levy (2017). It links to this 2016 article saying espn spends more on content than anyone else, which I suspect is no longer true, but is relevant in that cable subsidizes the cost of espn; by quietly drawing from a pool that is larger than their actual users, espn probably increased the price of sports licenses above the true demand. More recent 2021 netflix IR deck on content accounting talks about ASC 920, a GAAP ‘accounting standards codification’ on how to account for digital content, and says 4 years is still their average amortization. 

  13. matt stoller on the amazon antitrust suit. search for ‘three steps’ for his short explanation of prime’s fee structure to seller and why they were getting sued 

  14. netflix stopped accepting itunes in dec 2018 per venturebeat 

  15. bjork taught me that you shouldn’t trust poets and you should seek the true and scientifical explanation, which is much better 

  16. The Gracchi and the Era of Grain Reform  2

  17. Frumentariae Leges, dictionary of greek and roman antiquities, william smith, 1875 

  18. involution (nèijuǎn) on chinese social media, whatsonweibo, Manya Koetse 

  19. I’m not saying they were never innovative; only that they used military exploration to control more labor and send more grain home, rather than that growth being primarily driven through technology. Roman food supply innovations were many: Casson’s ‘Ancient Mariners’ talks about huge football field sized barges used for shipping grain. Kron 2005 says both people and livestock were taller in rome than in europe again until the 20th century, indicators of productivity. They possessed “innovations most responsible for the modern agricultural revolution: seed selection; effective tillage; hoeing and harrowing to destroy weeds; crop rotations; the suppression of bare fallow; the rotation of legumes … irrigation, … manure management; careful grazing management for range and pasture land; and, most decisively … ley farming or convertible husbandry, still the most effective system of intensive mixed farming.” james 2020 Innovation in the Economy of the Roman Grain Supply asks if rome “tried to improve the efficiency of their grain supply or whether they expanded their sphere of influence in large part to feed a growing urban population in the capital” and concludes ‘both’. 

  20. there’s a new york times article called ‘farewell millennial lifestyle subsidy’ which I can’t look up bc I have too many tabs open and the NYT paywall code sometimes crashes firefox 

  21. AFFORDABLE INSULIN NOW ACT; Congressional Record Vol. 168, No. 57 

  22. price transparency rules: 14% compliance says gothamist in 2022, 17% said axios in 2021. Not sure if it’s going down or just different survey methodology 

  23. Interestingly, some parasites invade predator-prey dynamics, manipulating the behavior of prey to increase the odds of transfering the parasite to predators, gardening ecosystems in hidden ways that serve the parasite’s life cycle. We’re not the only species with a regulatory capture problem; look to the foxes and voles. Dynamics of predation, Alyson Stevens, ‘host-parasite interactions’ section.