Company reiterates initial series will be small portion of total costs, viewing
Nevertheless, the Internet video streamer firmly believes the originals strategy remains critical to attracting and retaining subs — and generating mainstream cultural currency.
Netflix could expand to “20 or more” shows per year, but topper Reed Hastings said the company needs to collect more data on how well originals perform before it invests at that level.
Rather than a big spike in subscriber gains, “what we’ve seen with ‘House of Cards’ is a very nice impact but a gentle impact, not one that’s an overnight impact,” Hastings said during the company’s first-quarter earnings call.
Hastings said originals would remain in the “single-digit” percentage range in terms of total content costs through 2014, “so it’s growing, but is still a relatively modest part of our total content spend.” The half-dozen series on tap this year include the fourth and final season of “Arrested Development” to debut May 26. Netflix will mount a few more original skeins than that next year, “then we’ll see where we go,” Hastings said on the call. “There’s no set number we’re trying to target and it will depend on the results we see.”
“Long term, we believe the value of our original series in driving acquisition and retention improvements will be borne out as we add more seasons of already popular shows like ‘House of Cards’ and further series,” Hastings and CFO David Wells wrote in their letter to shareholders discussing the quarterly results. “Harry Potter was not a phenomenon in book one, compared to later books in the series.”
During the quarter, Netflix added about 2 million U.S. streaming subs to stand at 29.17 million domestically — pushing it past HBO in the States.
The debut of “House of Cards” provided “a halo effect on our entire service and spoke to the quality of experience members can expect from Netflix,” the execs wrote. Netflix licensed two 13-seg seasons of “HoC” from Media Rights Capital for a reported $100 million.
Last Friday (April 19), Netflix launched all 13 episodes of Eli Roth-produced horror series “Hemlock Grove,” which was viewed by more members globally in its first weekend than “House of Cards” was and has been particularly popular among young adults, according to Hastings and Wells.
While some investors fretted that “House of Cards” would lead consumers to sign up for aa free trial, watch the show and then cancel, fewer than 8,000 people did that, according to Netflix.
Netflix said it will shift marketing focus on originals and other high-profile titles as they come on the service, rather than generic value-oriented messaging. “This marketing strategy is designed to attract new members, excite current members to watch more and encourage past members to come back,” Hastings and Wells said in the letter.
Increasingly, the company’s marketing spending is digital with “a moderate reduction in our use of linear TV advertising,” they said. “We have seen encouraging results from online video ads and we will continue to find new ways to reach consumers at key stages along their consumer journey from initial awareness to free trial.”
Netflix reported marketing expenses of $129.2 million in Q1, compared with $129.9 million in the year-earlier period. However, the company said, prior-period marketing amounts have been reclassified as general and administrative expenses to conform to current-period presentation; G&A rose 26% year over year, to $44.1 million in the most recent quarter.
Other Netflix originals in the pipeline include dramedy “Orange Is the New Black”; Ricky Gervais laffer “Derek”; season two of “Lilyhammer”; and kids’ series “Turbo: F.A.S.T. (Fast Action Stunt Team),” bowing in December. In late 2014, Netflix will premiere “Sense8,” a sci-fi thriller from the Wachowski siblings and J. Michael Straszynski (creator of the TV series “Babylon 5”).
Separately, Netflix is facing competition in Internet TV originals from the likes of Amazon.com. Last Friday the retailer’s Amazon Studios division released 14 original TV pilots, representing eight of the top 10 shows streamed across the service over the weekend, according to the company. Based on consumer feedback, Amazon Studios will decide which series to greenlight for full runs.
Hastings said more aggressive bidding from Amazon and Hulu for TV content has driven up prices in the past year.