If you are anything like me, Thanksgiving break was an awesome chance to relax, unwind… and watch a ton of Netflix. There is nothing better than having the time to sit around all day and binge-watch a show without a care in the world (shoutout to Ozark). With all of this time spent on Netflix, I began to think a lot about the website and how it makes money. You are hard pressed to find anybody these days that does not have a Netflix account or access to one. You are also hard pressed to find any sort of technology with a screen that does not have a Netflix application. In just the past week, I have watched Netflix on my computer, on my TV through my cable at home, on my Xbox, and on my phone. Netflix is truly available wherever and whenever you need it.
One of the most interesting things to me, however, has been the noticeable uptick in the amount of original programming that Netflix is creating. It seems like every time I go on to the website, Netflix has released a new show, movie, or documentary, that they are promoting heavily. Much like how we all had to have an HBO subscription in order to be able to watch Game of Thrones, there is now something for every demographic that is a must-watch that is available exclusively through Netflix.
Netflix announced in October that they are hoping to have 50% of their content be original content by the end of 2018. In order to accomplish this feet, they have committed $8 billion dollars to spend on the development of original content in the next year. Netflix received 20 Emmy awards this past year for shows such as Stranger Things, and it would appear that the number will be slated to increase as the amount of original content balloons.
Original content helps the company succeed in today’s world on several levels. First of all, it draws new users to their site in order to gain access to content they would not be able to get anywhere else. Will the amount of new users that sign up for this reason in the next year outpay the $8 billion that Netflix is spending on this content? Not even close. This signals that there is a larger issue at play here for Netflix, one of the main threats to their business model and their ability to find success in the future.
What Netflix is trying to protect themselves against with this commitment to original content is being screwed over by closed ecosystems. Disney recently announced that in 2019 they will launch their own subscription streaming service, and it will be the only way to access all of Disney and Pixar’s movies and programming once they leave theaters. Other entertainment companies have also been rumored to be putting themselves in position for a possible move in to a closed ecosystem. This means that Netflix will have less access to the movies and TV shows that users will want – and expect – to be offered through the streaming service. From Disney alone, Netflix will lose the ability to offer movies such as Star Wars, the Marvel Movies, or any of the highly anticipated new movies coming from Disney/Pixar in the next few years, such as Toy Story 4 and The Lion King remake. With Disney also offering the ability to access exclusive ESPN content through their subscription service, a lot of people may start to reconsider which streaming service they want to pay for.
To combat this, Netflix has made a huge push to provide top quality content that is only available within the Netflix ecosystem. This push has had many benefits, as well as drawbacks. As a user, one of the main benefits has been the increase in high quality programming available. Shows such as Stranger Things, Ozark, Narcos, or the new Dave Chappelle comedy stand-ups would never exist if not for this turf war for exclusive content. In addition, stars like working with Netflix. For shows, there are less restrictions. For example, every show does not have to be exactly a certain length of time to fit the requisite number of commercials into its cable time slot. In addition, Netflix has taken on many different programs that the big studios have refused to try. This allows actors and actresses to try more creative, challenging projects. Lastly, Netflix has the ability to pay. Comedians Chris Rock and Dave Chappelle were both reported to have made $20 million per hour-long stand-up comedy special, available exclusively on Netflix. But there are certainly drawbacks as well. Most notably, obviously, is the cost. Netflix had to undergo another round of funding to make this expansion of original content possible. In addition, these billions of dollars could have been invested in to different ways to make the service better for its users, rather than in to new programs. Secondly, now that Netflix has gone from purely a distributor to a big time content creator, studios have stopped viewing them as a friend and have started to view them as competition. This means that Netflix can no longer acquire shows from other studios and networks at affordable prices. Long gone are the days that Netflix could acquire all five seasons of Breaking Bad at a reasonable price.
It will be very interesting if Netflix’s decision to progress in this fashion will be the right play for their business. The way that we view our entertainment is about to change once again to closed ecosystems and vertical integration. Whether this will be a benefit or detriment to users remains to be seen.