Netflix Targeting 50% of Content to Be Original Programming, CFO Says

Stranger Things Netflix
Courtesy of Netflix

Netflix is driving toward having half the content on its streaming service be original productions over the next few years, with the other 50% representing licensed TV shows and movies, CFO David Wells said.

“We’ve been on a multiyear transition and evolution toward more of our own content,” said Wells, speaking at Goldman Sachs’ Communacopia conference Tuesday.

In 2016, Netflix expects to launch 600 hours of original programming, up from 450 hours in 2015, content chief Ted Sarandos said at the start of the year. The company has projected content spending on a profit/loss basis to rise from $5 billion this year to more than $6 billion in 2017.

The original TV series and movies will continue to be a mix of content owned and produced by Netflix, as well as co-productions and acquisitions, Wells said. The company is “one-third to halfway” toward reaching the 50% originals target, he said. Not every show needs to be a breakout hit, he added: “We don’t necessarily have to have home runs… We can also live with singles, doubles and triples especially commensurate with their cost.”

As the cost of content production has gone down, the number of bidders for high-quality content and the amount of that content have increased as well, Wells said. “You have supply and demand settling out,” he said. “We would love to provide as many of those stories as possible to the consumer.”

While data is critical for Netflix to decide which content to greenlight, Wells said, “There’s no substitute for great creative execution – we are not at a point where we can get great content from a machine.”

Most of Netflix’s original movies are not huge-budget projects, Wells said, citing “Bright,” starring Will Smith and Joel Edgerton and directed by David Ayer, as an outlier. Netflix is reportedly spending some $90 million on the movie.

In the U.S., Netflix is in the process of shifting all U.S. subscribers to its standard $9.99 monthly plan, which provides two HD streams. That change, which increases the price for some older subs by $2 monthly, has led to higher cancellation rates than Netflix anticipated — and the company reported a lower-than-expected 160,000 net U.S. streaming subs for the second quarter.

Wells noted that Netflix is raising prices to generate more revenue, which it will then invest in additional content to attract and retain subscribers. Of customers who cancel Netflix, between 33% and 50% eventually return to subscribe to the service, he said.

The goal for Netflix is to release something that appeals to each individual subscriber, every single month, according to Wells, and on that front “we’ve got a ways to go” across different genres and formats. He added, “The nice thing about the platform is it allows a lot of creative freedom,” allowing for episodes of varying lengths.

Comcast has begun testing Netflix service on its X1 set-top platform, and Netflix recently signed a deal with John Malone’s Liberty Global international cable operator to launch the service across its footprint in more than 30 countries. Pay-TV operators have recognized that “it’s better to have the Netflix app on their box, their device, than lose customers to another ecosystem,” Wells said.

Internationally, Netflix aims for about 80% Hollywood content and 20% locally produced, in-language programming. The one exception is Japan, where Netflix skews more toward 50% local content, according to Wells.

Asked if Netflix would consider launching an ad-supported version of its service, Wells said that “there’s no immediate plans for an ad-supported product… The Netflix brand stands for no advertising.”

Pictured above: Netflix original sci-fi series “Stranger Things” from Matt and Ross Duffer

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  1. Betty says:

    I watch Netflix so I can watch the shows I like. Some of the their stuff is fine but I want to binge watch the old shows that aren’t on anymore. If it goes to mostly their stuff I’ll be gone.

  2. Let’s not forget that “original” programming can be headhunted programs as well, similar to what Hulu did with The Mindy Project. If Netflix had picked up Community instead of the black hole of fail that is Yahoo, then we would have gotten our movie. Networks screw over good shows all the time like FX is doing to Archer and they hold them back from being truly entertaining because Nickelodeon is too much of an old world dinosaur to let Legend of Korra continue airing just because there’s a same sex relationship in it. So this might not be so terrible. …although why they thought picking up the cinematic garbage that is Happy Madison and Adam Sandler was a good idea is a total mystery.

  3. TemporaryUser says:

    If half their content is going to be original programming, then they are either going to stop getting licenses to new mainstream shows, or produce a massive amount of unwatchable crap, or they’ll need to do a REAL price hike (think $10+ a month not just the ~$2 we just saw) to pay to make enough watchable shows to meet that quota.

    All bad options. I really hope they are just puffing and don’t really intend to do this.

  4. jedi77 says:

    I think it’s a shame.
    At some point in the near future, we will loooking for a streaming service “like Netflix used to be”.

    I guess I understand the idea of originals being paramount to customer retention. Giving people something they can’t get anywhere else.

    But, at the same time, Netflix was had the promise of one stop shopping for entertainment. It was great. You looking for a show? Netflix. You looking for a film? Netflix.

    When no one is buying their content because they are all focusing on original content, networks will be forced to develop their own streaming services. They will be sub par quality, and there will be too many to count. And suddenly all that entertainment will be too hard to access. And we the consumers end up where we started, before Netflix.
    And that is a shame.

  5. Matt says:

    Stupid logic, raise prices so they can produce more mediocre stuff that subscribers might or might not want to watch instead of giving people what they want in the first place. And that’s why I canceled.

    • nerdrage says:

      Nope, they know what they are doing. They are anticipating a new world of 4 or so global streaming services, which have driven broadcast and cable under. At that point, Netflix/Amazon/etc originals will be all that is produced while broadcast is the home of sports and other live programming while cable brands that can will migrate to streaming.

      • TemporaryUser says:

        I think it seems more likely they are afraid that TV channels and movie companies will eventually develop their own personal streaming or digital distribution services, then pull the licenses for their stuff from Netflix. It’s even possible the other companies will just sign an exclusivity contract with Hulu or Amazon to get more money.

        If all of Netflix’s content is from outside sources then they are left in a rather precarious position.

        I still think that the old Netflix strategy was better for consumers though. I’d rather they temporarily acquire the license to 100 shows rather than permanently acquire 1 show (Note: actual licensing cost vs. production cost not known, this is just an estimate).

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