Netflix’s gamble pays off as subscriptions soar

Netflix’s gamble pays off as subscriptions soar
Hundreds of movies disappeared from Netflix over 2016, the result of the streaming service’s decision to end several key content deals with top studios and distributors.
By Dave Lee
Jan 18 2017

It was a brave move – particularly given that its main rivals, such as Hulu, jumped at the chance to take on some of those titles Netflix decided it no longer wanted.

The reason for the cull? Original content.

Netflix was being bold – its aspirations were no longer to be your on-demand DVD collection, but instead the place where you discovered and consumed new and exclusive shows.

So rather than pay money out to studios for the right to show existing content, it instead ploughed its cash into shows such as Stranger Things, The Crown, Luke Cage and the remake of Gilmore Girls.

In 2016, those “Netflix Originals” – already a term you could argue has become synonymous with quality – came thick and fast.

The firm said it produced 600 hours of original programming last year – and intends to raise that to about 1,000 hours in 2017. Its budget to achieve that is $6bn (£4.9bn) – a billion more than last year.

BBC threat

On Wednesday we learned the company has been rewarded handsomely for putting its eggs in the original content basket. After hours trading on Wednesday saw the company’s stock rise by as much as 9% on the news it had added 7.05 million new subscribers in the last three months of 2016.

That’s far greater than the 5.2 million they had anticipated, and left them ending the year with 93.8 million subscribers in total – and an expectation of breaking the symbolic 100 million mark by the end of March.

In all, 2016 saw Netflix take in $8.83bn (£7.1bn) in revenue – with a profit of $186.7m (£151.6m).

All looking good, then – but there’s still work to do.

In a letter to shareholders, Netflix underlined, as it is obliged to do, the potential risks to its success going forward – chiefly globalisation and competition.

While international expansion has been rapid, with the majority of the new sign-ups are coming from outside of the US, it will require a lot of expenditure for Netflix to dominate with original content in the 189 other countries it serves.

It has put some of its budget into non-English language shows, such as “3%”, a Portuguese sci-fi series. Intriguingly, Netflix noted that many English viewers opted to watch the dubbed version, providing an unexpected added audience.

Still, when local TV players kick into action and give up so-called linear TV – episodes once a week, and so on – in favour of Netflix’s model there’s a chance the company’s head start could be clawed back.

The company notes that the BBC became the first “major linear network” to push into a “binge-first” strategy, and it expects American network HBO to follow suit pretty soon.



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