Several years ago, Netflix (NASDAQ: NFLX) start a new strategy. The company said it will gradually switch to spending the majority of its content budget on original programming, as much as 85%, rather than permitted content.
Critics have often slammed the move, revolving around the company’s original shows and the money-burning strategy it needed, as Netflix has taken billions in debt and has lost billions in free cash losses in recent years. That strategy is likely to face the biggest test as the streaming service loses The Office, the famous NBC comedy that has been the most popular show at, or close to, Netflix for much of the last decade. At the end of the year, The Office he moves to Peacock, the Comcasta proprietary streaming service that offers a free series with ad support, though most of the series will only be available to Peacock subscribers.
For Netflix investors, however, there is no need to worry about leaving the popular sitcom.
The original strategy worked
Co-CEO Reed Hastings and his team have consistently defended the move to prioritize originals over licensed programming, explaining that Netflix owns this content entirely and can spread all over the world. In addition, it helps the company to differentiate between competitors and traditional pay TV channels that may offer the same content. While the initial money will have to cost more, the company believes they are more profitable in the long run, and recent Netflix quarterly reports have confirmed that as they expect to now the operating margin will reach 18% this year.
Perhaps some of the best evidence that this strategy pays off comes from the streaming aggregator of Reelgood, which compiled a list of Netflix’s top 50 shows this year based on a list of 10 best best climber himself who he introduced in February. Using its own point-scoring system, which assigned higher values to titles further up the list, Reelgood found that 80% of the top 50 shows were originally from Netflix, while 8 of the top 10 were -only for Netflix as well.
These shows were Queen’s Gambit, Tiger King, Ozark, Outdoor Banks, Umbrella Academy, Unsolved Mystery, Cobra Kai, and Love is blind. At the same time, The Office came second, and another permitted title, Cocomelon, the children’s lively show, first place.
Dominating the conversation
Netflix has another advantage from betting on original products rather than reruns The Office. While audiences may get some streamer-allowed shows, it’s not going to get any attention for putting old content on stage. On the other hand, a popular new show will get the company’s media coverage, award nominations, and excitement among the masses. Queen’s Gambit, a limited edition about the chess of young female chess in the 1960s, has had a dramatic impact on the wider cultural zeitgeist.
Interest in chess has risen as a result of the show. Chessboards are sold out in stores, and interest in online chess has also skyrocketed. Other Netflix shows like King of Tiger the same way to capture the cultural communication. With a steady drum beat of original content, Netflix can keep subscribers happy and confident that there will always be something new for them on the platform. Commenting on his desire for the company to churn out after they were beaten, Hastings said, “For the most part we want to be the only one you can enjoy. always, to be the easy, simple choice. ”
Unlike other streaming services, which tend to target a certain type of content, Netflix wants to please everyone, and it seems to be achieving that goal. The company is also raising prices in North America, another sign of optimism.
Hastings has said that, when asked about the risk of losing shows, no single title accounts for more than a low, one – digit percentage of streaming hours on stage. Some subscribers will no doubt see disappointment The Office leaving Netflix streams, but it is unlikely to make a substantial difference to the company’s performance. The company is on the verge of surpassing 200 million global registrars, mostly outside the U.S. The streaming company is better off focusing on original shows than adherence to old permitted content.