Netflix exceeds expectations for 3rd quarter subscriber growth
Netflix celebrated an excellent end to its third fiscal quarter by taking home the second largest number of Emmys this year compared to any other network. Netflix original shows and films were nominated for 91 awards, of which they received 20. The video streaming website’s strong showing at the Emmys was most likely the result of the company’s increased funding of original programming. The company invested $7 billion into original programming this year, compared to $6 billion last year.
As a result of this success, Netflix has announced its plans to invest $8 billion into original programming. By 2018, its library will comprise of at least 50 percent original programming. The company hopes that this will help increase its revenue from subscribers.
Netflix’s increased emphasis on original programming is a wise decision, as it could benefit the company in several ways. By creating and distributing original programming to subscribers, Netflix will have content to entice consumers into purchasing subscriptions.
Original programming also means that Netflix can sign fewer licensing deals with film and television production companies for their content.
Although developing content is expensive, relying less on licensing deals can save Netflix money in the long run, as the company would not have to pay royalties on self-developed content.
Developing original programming that receives positive reviews and wins awards serves to strengthen Netflix’s reputation in the entertainment industry. Finally, Netflix can create specific programming that it thinks will appeal to consumers, instead of relying on content from other producers that Netflix does not see as interesting to its target markets.
Despite the surge in Netflix’s growth, critics are skeptical as to whether said growth is sustainable. Netflix’s financial position does not appear to be completely sound. For example, the company’s total gross debt has expanded from $1 billion to $5 billion since 2014. Netflix is committed to spending $15.7 billion on streaming content, up from $12.3 billion one year ago.
Disney has announced it will pull its selection of films and television shows from the video service’s library so that by 2019, it can put this content on its own streaming service.
Networks such as Fox are also removing their content from Netflix’s library. Netflix predicted that other media companies will do the same after seeing the success of streaming original movies and shows.
To counteract this, Netflix teamed up with some of the biggest names in the entertainment industry, including Shonda Rhimes, Chuck Lorre and Jerry Seinfeld, to assist in creating more original programming. The company’s debts may seem burdensome, but they are necessary in helping to establish Netflix as a more independent business.
Expansion costs in both developing more infrastructure and moving to larger markets are substantial, but Netflix CEO Reed Hastings claims that those costs will be passed to investors, not to consumers.
He explains that investors are willing to give Netflix more funding, which would allow the company to grow its subscriber base and eventually become profitable enough to offset these costs.
Not all of Netflix’s original programming has been profitable. Shows such as “Sense8” and “The Get Down” have cost the company hundreds of millions of dollars. Some investors are worried that Netflix’s push to create more of its own content will decrease each original show or film’s quality. Kelly Ngo, a Baruch College student and Netflix fan, stated her opinion on whether Netflix’s growth is sustainable, “Netflix’s shows are great, but sometimes it can be an overwhelming amount.”
When asked about what they should do to improve, she replied, “They should try to acquire the rights of popular shows they don’t have and continue to improve their own shows in production.”
Competitors have been keeping an eye on Netflix, fearing it may eventually hold a monopoly on streaming in the entertainment industry. Netflix has significantly higher numbers compared to other streaming companies.
For example, Netflix has spent much more on itself than other streaming giants like Amazon, which spent $4.5 billion and Hulu, which spent $2.5 billion. To effectively compete with Netflix, these companies may need to change strategies.
Simran Kaur, a Baruch sophomore, says that as a Netflix user, she is “enjoying shows daily, even sometimes having to limit myself in order to finish my work.” Many college students generally confess to doing the same.
With the thousands of hours of entertainment provided by Netflix, subscribers can get the most out of their dollar. As Netflix grows, it will only become more entrenched in our lives, but said growth will become increasingly dependent on the company’s ability to develop original programming that is reviewed positively.