April 17, 2018
Netflix’s $8 billion production allocation for 2018 to produce and acquire 700 shows and films is reaping record new subscribers.
Netflix added 7.4 million subscribers from January to March. Total subscribers just surpassed 125 million.
Original Content Leads The Way
In the first three months of the year, original programming was up 85%, totaling 483 hours. Only a year ago, Netflix started implementing plans to produce 50% original content. It’s safe to say original programming is directly impacting subscriber growth.
Netflix expects to release 80 feature-length films this year, nearly as many as all six major studios.
There is no indication how many films will be original compared to film market acquisitions. Content Officer, Ted Sarandos said Netflix’s 80-film slate would include a mix of $1 million Sundance films to big budget fare like David Ayer’s Bright starring Will Smith that cost $90 million to produce.
Growth Now. Profits Later?
In the first quarter of 2018, revenue grew 40% year-over-year to $3.7 billion.
Over the same period, the average cost of a Netflix membership rose 14%. Subscriber growth is accelerating even as monthly fees go up.
Netflix said it would continue to raise debt as needed to fund increases in original content production.
Netflix has $17 billion in outstanding content commitments over the next few years. Consequently, the company expects negative free-cash flow to get much worse.
However, investors continue to accept negative free cash flow in exchange for the potential of massive future growth. In the last year, Netflix’s market capitalization more than doubled to reach $137 billion.
In The Lead
Netflix faces modest competition from Amazon, YouTube, and Apple, but with 125 million subscribers in 190 countries and hundreds of new shows and films, it’s unlikely they will challenge anytime soon.
About a decade too late, Disney is finally launching its own streaming service. The company announced that its hugely popular library of Disney and Pixar films would no longer be available on Netflix after 2019. These titles will instead stream exclusively on Disney’s new service.
Disney’s new streaming service will likely be popular, but unlikely a Netflix-killer, even if it acquires Fox.
Likewise, many other studios, international distributors, and traditional media companies are all scrambling to launch similar streaming services.
There is a scary question Netflix doesn’t want to know the answer to. If all the major studios pulled their content from Netflix, how many subscribers would remain for the original content alone? The answer that the studios don’t want to hear is that with each passing day, more and more.
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In addition to massive content acquisition fees and production costs, Netflix is working hard to woo talent away from the major studios with exorbitant overall production deals.
Most recently, Netflix signed a five-year contract with creator Ryan Murphy, who was previously at Twenty-First Century Fox. Murphy is behind hit shows like Feud and American Horror Story. Murphy will receive a shocking $300 million for his five-year commitment with Netflix.
Before signing Murphy, Netflix lured Shonda Rhimes away from ABC Studios with a multiyear $100 million payday. Rhimes is known for global hits like Grey’s Anatomy and Scandal.
Netflix also has overall deals with the Orange is the New Black creator and GLOW executive producer Jenji Kohan, and with Stranger Things executive producer Shawn Levy.