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

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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