Here’s Why Netflix Investors Are Getting Nervous

December 7, 2015, 11:24 PM UTC
Photograph by David Becker — Getty Images

Netflix’s stock price has soared over the past year, and it’s easy to see why. The streaming video company has several of the most popular shows around—including Jessica Jones and Narcos—and has disrupted the traditional television industry to the point where many “cord cutters” have given up cable altogether.

That’s the good news. But often when there’s a lot of good news, there’s also potential bad news lurking around the corner, and that’s what has some investors in Netflix (NFLX) concerned.

On Monday, the two fears that sent Netflix shares tumbling more than 5% in a matter of hours were as follows: 1) That Netflix is going to see its costs dramatically increase, as it takes on more and more of its own original programming. And 2) That the company’s revenues might also be under pressure for a number of other reasons, including an ongoing battle with TV networks over licensing of their shows.

Those fears seem to have been triggered in part by comments that Ted Sarandos, Netflix’s chief content officer, made at a UBS media conference in New York.

For one thing, Sarandos expanded on previous reports that Netflix wants to add to the number of shows it produces. It now looks as though the company will almost double the number of original programs from what it put on its schedule this year. Instead of just 16 shows on the roster, including Orange Is The New Black and House of Cards, Netflix plans to have more than 30 of its own shows by the end of 2016, Sarandos said.

And that’s not all. According to several reports from the UBS conference, the Netflix executive said that the company is also working on 10 new feature films, 30 children’s shows, 12 documentaries, and 10 stand-up comedy specials. In other words, Netflix is becoming a full-fledged network.

Part of what investors are struggling with is that Netflix is undergoing a pretty fundamental evolution, or revolution, in what it does. The company rose to prominence as a digital distributor of TV programming produced by other companies—the major TV networks, etc. (which was in turn a pivot from its original business of renting DVD versions of popular movies).

That was a relatively low-cost business, since Netflix didn’t have to produce any of its own content. But now, the company is essentially becoming a standalone TV and motion picture studio, albeit one that distributes the majority of its product online.

That means dramatically higher costs, since TV shows can costs millions of dollars to develop and produce, and movies can cost tens or even hundreds of millions of dollars. Studios and developers of original programming also tend to be valued very differently from digital distribution channels like Netflix.

Despite the higher costs, however, Netflix doesn’t really have a choice when it comes to focusing on its own original content. Why? Because the major TV networks and broadcasters are becoming increasingly reluctant to license their shows to the company, in part because they have gradually realized that Netflix is stealing their customers—using their own content.

This explains why more and more networks are saying they will withhold shows from Netflix, or delay the period in which they license them. Several are even trying their own Netflix-style streaming services, such as Stream from Comcast (CMSCA).

Then there was Sarandos’s second comment: The Netflix executive said signing global licensing deals for U.S. shows “has not been an easy road.” In part, that’s because U.S. networks are used to signing country-specific or regional licensing deals rather than global ones. But it’s also likely being driven by a growing concern on the part of broadcasters about how much they have given Netflix already.

As my Fortune colleague Jeff Roberts has pointed out, Netflix shares have climbed by almost 40% so far this year, despite the appearance of some formidable competitors in the online video and movie market, including Amazon Studios (AMZN) and potentially Apple TV (AAPL) as well.

There’s no question that Netflix has been tremendously successful with its content, and a large segment of the TV-viewing public sees the service far more central to their lives than their cable subscription. But at the same time, the company is on a path that will see its costs continue to increase dramatically—and competition with existing TV networks and potential new players has never been more fierce.

You can follow Mathew Ingram on Twitter at @mathewi, and read all of his posts here or via his RSS feed. And please subscribe to Data Sheet, Fortune’s daily newsletter on the business of technology.

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