NEW YORK (TheStreet) -- Netflix (NFLX) is speeding up its amortization of original content spending after a few quarters of insight into customers' binge viewing habits. The accounting change comes as the Reed Hastings-run company said it would double its investment in original content next year.
In better-than-expected third quarter earnings released on Monday, Netflix said it will accelerate its amortization of upfront expenses the firm incurs for its original series. The accounting change, which Netflix said it would consider in the second quarter, did not tip the company's overall cash flow negative for the quarter.
Initially, Netflix used straight line amortization accounting to reflect the expenses it incurs to invest in original content. Now, the company will be accelerating that amortization, given heavy initial user consumption of new shows that are released on the streaming site.
"When we started with original content we didn't have specific data about viewing patterns over time for content that premieres on Netflix. We decided to use straight line amortization based on our experience with TV series from other networks," Netflix said in its third quarter earnings release.
"Now we have more specific viewing data for original content which shows more viewing in the early months of a show's debut, so we are accelerating the amortization of such content commensurately," the company added.
Previously, Netflix capitalized spending on original series, and then amortized those costs on a straight-line basis over the shorter of four-years, or the show's license period.
Netflix said on Monday the faster amortization of original content is small enough that it won't change the firm's profitability and margin targets. Earnings results also indicate the firm was able to continue generating free cash flow for the second straight quarter. Netflix generated $7 million in free cash flow (FCF), reversing year-ago negative free cash flow of $20 million.