Has Netflix’s Originals ‘Novelty Factor’ Worn Off?

CFO David Wells says sub additions in 2013 may have been lifted by the 'PR bloom' surrounding 'House of Cards,' 'OITNB'

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Netflix’s subscriber growth for 2013 may have received a one-time lift from high-profile original series “House of Cards” and “Orange Is the New Black,” and the pace of net additions has now returned to lower levels now that the “PR bloom” has faded, according to chief financial officer David Wells.

“You only come out with new, original content one time,” said Wells, speaking Tuesday at RBC Capital Markets’ 2014 Technology, Internet, Media and Telecommunications Conference. “We knew that the PR bloom around launching something brand-new in the market, including brand new shows that caught hold like ‘House of Cards’ and ‘Orange Is the New Black,’ wouldn’t last forever. So the novelty factor does wear off after a while.”

But none of that is to suggest Netflix is abandoning its originals strategy. Netflix’s pipeline of large original projects for 2015 will more than double, Wells said. He cited “Marco Polo,” set to debut Dec. 12, to be followed next year by the third seasons of “HOC” and “OITNB,” along with thriller “Bloodline” (from the creators of “Damages”) and comedy “Grace and Frankie,” starring Jane Fonda and Lily Tomlin.

Netflix’s stock tanked last month after the company missed expectations on net subscriber additions for the third quarter — adding 980,000 in the U.S., versus its previous guidance of 1.33 million. The company initially pointed to a delayed effect from Netflix’s price increase in May for new subscribers, by $1, to $8.99 monthly. But Wells allowed that Netflix may have overestimated net adds for the most recent quarter because original series launches in 2013 lifted up signups in the year-earlier period.

Still, Netflix had healthy growth in the quarter, and it’s on pace to add 5.5 million to 6 million net subscribers in the U.S. for 2014. For 2013, Netflix added a net 6.3 million subs domestically. “We still think we have plenty of growth left in the U.S. market,” Wells said.

As for the price increase, while there was clearly a short-term effect on sub growth, Netflix still needs several more quarters to determine what that will be over the long term, Wells said. The average subscription price is going to grow, “so we’re still net better, from a revenue perspective,” he added.

Asked about CBS’s recent over-the-top streaming launch and HBO’s planned standalone broadband service slated for sometime next year, Wells maintained that the rising OTT tide will lift Netflix’s boat as well. “It helps validate the tremendous value that Netflix brings at $9 in the U.S. a month,” he said.

Internationally, Netflix in 2015 is planning more launches on the order of its expansion to six European countries this fall or potentially higher, according to Wells, although he did not identify markets. Within the next three to five years, “we feel it’s possible for Netflix to generate 50% of revenue outside the U.S., maybe more,” the CFO said.

Among the markets Netflix is expected to launch next year is Australia, which has an estimated 6.4 million broadband households.