AS NETFLIX STRIVES TO keep pace with its monumental growth over the last decade, one aspect of the streaming giant’s success which took its leadership by surprise is how important original programming has become to its operations and success.
This, quite frankly, will be one of the primary challenges facing Canadian broadcasters (who are in California right now attending the LA screenings, where they will try to figure out whose American content is best to rent for this fall) in the next decade.
Just last month, Deloitte’s Duncan Stewart opined that by 2028, Netflix’s budget for content creation could be upwards of US$30 billion, more than the combined budgets spent on non-sports content by NBCUniversal, Fox, Time Warner and Disney in 2017.
Speaking at the fifth annual MoffettNathanson Media and Communications Summit in New York City last week, Netflix’s chief content officer, Ted Sarandos (right), admits the company was late to the party with respect to original programming, but that it has since become its most important cornerstone. “We [were] five years into our business before we started doing any original programming, and in that time, it has become our most important investment,” Sarandos said, noting the company will boast more than 1,000 original releases by the end of this year.
He also says that by the end of 2019, Netflix Studios will be the largest content supplier for the streaming service.
“We kind of had an inkling 10 years ago when we first started doing streaming that the notion [of original programming] was very quantifiable. Get people to watch a lot of stuff and have a lot of stuff…but then we’ve quickly come to realize it’s a pretty quick race to the bottom if you wanted the same content [as other providers]. So how do you differentiate yourself?”
With more than 125 million subscribers in 190 countries around the globe, Sarandos claims that 90% of its customers watch original Netflix programming. Not only is the company continuing to churn out high-quality programming such as the highly-anticipated and just launched second season of 13 Reasons Why along with exclusive comedy specials from some of the biggest names in the business, a major area of focus for Netflix this year is improving the density of viewing for its original programming.
“That’s something we’re trying to figure out now, which is the value that a ‘1 and 1 equals 3’ model of people watching at the same time versus watching over a longer period of time,” Sarandos said. “If you can increase the density [of viewership], you increase word of mouth, earned media and a kind of zeitgeist volume, because everyone is watching at the same time. That creates something people instantly associate with Netflix.”
“We are not entering those markets aiming to tear down the local producers, but are rather someone who is coming in and adding a lot of value to those countries.” – Ted Sarandos, Netflix
When it comes to standing shoulder-to-shoulder with legacy television networks, one of Netflix’s key differentiators of course has been the company’s tendency to release complete seasons of its original programming, as opposed to roping viewers into a specific time or day to catch the latest show.
Sarandos believes the binge habits of Netflix viewers is becoming increasingly generational, but that in the long run, the company can produce numbers that rival the major television networks’ viewer numbers.
“By not having our shows showing just once a week, people end up watching different episodes of the same show. Over the course of the years, you end up with more [viewership] volume relative to social media posting, Google search trends and all those things. If you look at that over the course of the year, the cumulative benefit is much higher than the week over week over week [trend].”
Spencer Wang, Netflix’s vice-president, finance/investor relations and corporate development estimates that of the $8 billion slated to hit the company’s P&L this year, approximately 85% of all new spending will be on original programming.
As Netflix’s ever-expanding influence on the television industry continues to spread around the world, Sarandos insists the company is looking to partner with production companies and broadcasters throughout those various territories, rather than bulldozing their way in and decimating the competition.
For example, CBC and Netflix have worked together on Anne and Alias Grace and the recently filmed SCTV reunion special was a joint effort of the streamer and Bell Media.
“I think we understand that we’ve become a bigger presence in countries, and we understand how we’re mindful of that and the responsibility that comes with it,” he said. “We want to be great partners in those countries and are becoming a big production partner for a lot of those who are concerned about disrupting their local production ecosystem. We are not entering those markets aiming to tear down the local producers, but are rather someone who is coming in and adding a lot of value to those countries.”
