Bottom Line: Netflix is reportedly looking to curb spending on original content after losing subscribers for the first time since 2011. Sources familiar with the company’s strategy told The Wall Street Journal that after releasing more than 500 original programs in 2021, the company is looking to reduce output and focus more on producing quality programming. Specifically, Netflix will renew production deals to mitigate risk and prioritize productions with the greatest returns, not the widest reach.
What’s ironic is that Netflix is largely responsible for the current state of streaming. Years ago, the industry was much more consolidated as several studios simply licensed their content to Netflix for digital distribution. Then Netflix decided to join the original content game, but with no track record, they had to pay too much to win bids for high-profile shows.
“That was the cost of access, the cost of doing business,” Bela Bajaria, the head of global TV for Netflix, said in a recent interview.
It wasn’t cheap, but it worked. Early originals like House of Cards and Orange is the New Black helped the service grow, and soon licensing partners wondered if they could replicate Netflix’s success on their own. Disney took the plunge, pulling its movies from Netflix and launching its own streaming service called Disney+.
Others with sizable media libraries would also test the waters with exclusive streaming platforms. That has led to a lot of fragmentation in the market, with services like Paramount+, Peacock, Hulu, HBO Max, and others all vying for your monthly sub.
Netflix has continued to invest heavily in original content and this year will be no different. The company expects to spend more than $20 billion on content creation by 2022. Stranger Things 4, due out next month, has reportedly cost $30 million per episode to film. The main difference these days is that Netflix spends money not only to grow and maintain its subscriber base, but also to fend off competition that did not exist before.
Video streaming is seemingly at a crossroads. Continued fragmentation – even more services competing for your money – seems unsustainable for all concerned. Maybe consolidation is the answer?
As for Netflix, more targeted spending could help. The streaming giant is also open to cheaper subscription tiers and is exploring how to monetize shared accounts. And if the industry consolidates, Netflix may be able to negotiate new licensing deals and cut spending on expensive originals. One thing seems clear: further price hikes, while already on unstable ground, don’t seem like a good idea.
However, in the near future it will probably get worse before it gets better. Netflix said it expects to lose another two million subscribers in the second quarter, largely due to the pullout from the Russian market.
Image credit Venti Views, Mason Kimbarovsky
This post Netflix will need to be more financially disciplined in the future
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