David Farnor | On 23, Sep 2016

Netflix is aiming for half of its content to be original productions, the streaming giant has said.

We’ve written many times before about Netflix’s evolution from a catch-all site with everything on it to a less expansive catalogue of exclusives, more akin to someone like HBO. Indeed, the site has long found itself caught between the aim to have something to suit all audiences and the problem of facing competition from other services. That rivalry not only pushes up the cost to acquire content, but also means that the rights to everything is not available everywhere – and, as Netflix has said many times before, it wants to be able to provide the same library to everyone around the world as much as possible, ending the frustration of subscribers who have previously used proxies to access content in other countries.

The solution to both is to produce as much original content as possible, giving Netflix global rights to the titles it does have, plus exclusivity to attract customers and lower costs. As the Netflix brand grows, the theory is that more people will sign up for that stuff, not just the movie they missed 12 months ago in cinemas.

“We’ve been on a multiyear transition and evolution toward more of our own content,” CFO David Wells confirmed at Goldman Sachs’ Communacopia conference this week.

That doesn’t mean every single one has to be a smash success, he added – it just needs to cater a different part of the overall audience.

“We don’t necessarily have to have home runs,” he commented. “We can also live with singles, doubles and triples especially commensurate with their cost.”

Cost remains a hurdle, as while the site makes its outgoings more efficient, the bidding for third party acquisitions is still getting more heated.

“You have supply and demand settling out,” he observed. “We would love to provide as many of those stories as possible to the consumer.”

An increasingly common workaround for Netflix has been to join projects as co-producer in partnership with broadcasters around the world, including, most recently, deals with ITV’s Paranoia and E4. Netflix sacrifices the first-run rights in one territory for the first-run rights everywhere else, before streaming it in the original country several months later. At the moment, around one-third of Netflix’s total library is made of originals, with the 50 per cent target including titles owned and produced by Netflix and co-productions. The other half will be acquisitions of older films and TV shows.

The momentum continues to build. This year, Netflix has a whopping 600 hours of original programming in the pipeline, up from 450 hours in 2015, content chief Ted Sarandos announced at the start of 2016. Content spend on a profit and loss basis is set to rise from $5 billion this year to more than $6 billion in 2017, reports Variety.

That doesn’t necessarily mean they are making big blockbusters, though. The site generated headlines recently when it was revealed that it would be spend around $90 million on David Ayer’s new film, Bright, starring Will Smith and Joel Edgerton. That, Wells noted, is not the norm.

Worldwide, the plan is to have around 80 per cent US content and 20 per cent local content in a country’s native language – except for Japan, where the split is closer to 50/50.

To fund these expanding ambitions, Netflix has received some negative feedback for raising its prices. After freezing older customers’ monthly fees for two years, customers are now being bumped to $9.99 a month in US and £7.49 in the UK for an account with up to two simultaneous HD streams. Despite some short-term churn, the long-term goal is thought to be worth it, as it calculates the best things to be adding to its line-up to attract and retain subscribers.

Despite its reputation for number-crunching, though, Wells said that data isn’t the be all and end all: “There’s no substitute for great creative execution – we are not at a point where we can get great content from a machine.”

The end game is to be adding something that appeals to every customer demographic – not just in general, but on a regular basis every month. October’s line-up is already notably diverse, although Wells admitted “we’ve got a ways to go”. The result is a formula for success that Netflix is confident will pay off: of those who do cancel their subscription, between one-third and half eventually return, revealed Wells.

And so the shift to original content continues.

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