Why Netflix won't be able to get everything its way
CHRIS SUTCLIFFE on media
The world's premier film and television streaming service Netflix recently went over and above industry predictions when it announced third quarter results showing it now has 104 million subscribers globally.
It added 5.3 million subscribers in the past quarter alone, and predicts it will add another 6.3 million in the final quarter of the year on the back of the debuts of shows like David Fincher's Mindhunter, Marvel's The Defenders and the second season of cult phenomenon Stranger Things.
Netflix's messaging is that high-profile shows are such a draw for its audience that they will happily pay the raised subscription prices it is rolling out across territories. That's why the service is investing nearly £6.2 billion into creating original shows next year, with a goal of fully half of its catalogue being Netflix-created exclusives in the near future.
Its result statement notes that as more traditionally-structured television broadcasters and even satellite and cable channels are reducing spend on content in the face of competition from over-the-top (OTT) digital services like, yes, Netflix, a strong catalogue of original shows could be the point of differentiation that keeps them ahead of the competition.
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But behind that explicit optimism lies a few tacit truths about the real reason Netflix is investing in more original content, and while those results make Netflix look unassailable, there are a few potential roadblocks that might halt its march to absolute streaming dominance.
'The first is that the company has $4.8 billion in debt and liabilities. However it also has a further $15.7 billion in streaming obligations and, crucially, future content expenses. That's not as much of a problem as it appears at first blush: much of that debt is as a result of its forays into original content.
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As the old adage goes, you have to spend money to make money, and its latest results show that its overall revenue for the quarter was up 30.3% year-on-year. In the short-term at least, Netflix is going to be fine for cash.
The second is that Netflix's viewing figures aren't readily accessible. Since it doesn't sell advertising, it has no impetus to share that information, but it is currently in a spat with audience data information provider Nielsen over how many – or few – people actually watch its original series.
The third, more fundamental threat to Netflix's existence might well be its own success. As the company grew from a mail-order DVD rental service to the de facto ruler of the streaming world, it did so with the aid of other studios and production companies who were willing to license their own films and shows to Netflix. Now that those same companies have seen Netflix's success, they're less willing to extend Netflix the courtesy of licensing – after all, they'd be abetting a competitor.
Earlier this year, for instance, Disney announced plans to launch its own streaming service, pulling its movies from Netflix. And other networks are likely to do the same, as Netflix's chief content officer Ted Sarandos acknowledged in an interview with Variety in August.
But while those other players enter the streaming game they might want to consider that audiences' cash and attention resources are limited, and that while people are far more likely to subscribe to entertainment services than news, there is still only room for a few at the top.
So Netflix's investment in original content might be less about serving audiences exactly what they want, and more about padding themselves ahead of a shakedown in the streaming world.
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