In one of the concalls management has clearly said that in last 1-2 years, significant part of their spend on inventory is on digital rights. Now in digital rights, the content gets monetized continuously and incrementally and not once (as it happens with broadcasters). Another peculiarity of digital right monetization can be back ended because of the tailwinds of higher penetration of smartphones/internet and higher internet speeds. Another interesting point is (And this is again hypothesis) that once you get higher volumes - it leads to higher realizations too in digital media…further accentuating the monetization.
Similar thing happens for perpetual rights too…that rights that you have acquired perpetually…and hence paid higher value for it(reflected in higher inventory value)…get monetized in chunks but 100% expense gets booked in 1st and 6th year (65% and 35% respectively). Thus the cash out flow and inflow from monetizations are not in sync.
So, I feel in Scenario (A)…there will be free cash flow generation that is depressed currently will improve going forward even with the current level of content acquisitions. Also, we have to keep in mind that off lately, they have been acquiring content for longer period (10 years instead of 5)…so they are paying cost upfront for 2 cycles (reflecting in inventory) which will get monetized in year 1 and Year 6 (At much higher value). On Scenario (B), what you are saying may be case for perpetual content and some longer period deals (10 years aggregation) but not for 5 year aggregated content.
Having said that,I also agree that inherently it is a business model where you need to keep on investing in content from time to time and put in capital to keep growing. So, it is not a business model which will gush out tons of free cash flow. However, what matters is if they keep on generating decent returns on their incrementally invested capital. It is like a business model of Wonderla/Divis where you have to keep on incurring capex to grow and then generate decent return on it.