David Farnor | On 19, Oct 2016

Netflix will spend $6 billion on original content on 2017, as the streaming giant continues to expand its production arm.

Netflix has helped to usher in a new era of online media, not just in terms of distribution but in terms of what’s being distributed. The site has banked on exclusive titles as the key to attracting subscribers and the gamble has paid off – this summer, the company raced to 86.7 million users worldwide, beating expectations and driving up its share price. In a letter to shareholders, CEO Reed Hastings attributed that growth to the success of summer sleeper hit Stranger Things.

It has “the kind of broad appeal, cross demographic, and cross border sensation that we hope will distinguish Netflix original content”, noted Hastings.

Sure enough, Netflix has no plans to slow down. In 2017, it will release over 1,000 hours of premium original programming, up from over 600 hours this year. With its budget growing too, the aim is to produce not just popular shows, but shows that will be popular to specific target audiences, whether that’s fans of prestigious political drama or Adam Sandler.

“The Internet allows us to reach audiences all over the world and, with a growing base of over 86 million members, there’s a large appetite for entertainment and a diversity of tastes to satisfy,” explained Hastings. “We are fortunate that our Internet-centric, on-demand, subscription-only business model allows us to support programs for both mass and niche audiences alike. Our personalization algorithms help us promote the right content to the right viewers. And since we are not shelf-space constrained nor reliant on advertising, we have the luxury to tell all kinds of stories in less traditional ways.”

He argues that we are in a “new golden age of content”, with viewers everywhere enjoying unprecedented access to “amazing amounts of high quality programming”. Netflix’s broad yet niche approach has fuelled an increasing number of local productions around the world, in countries as diverse as Spain, France, Brazil, Japan and Argentina.

It is also looking to co-produce programmes as well, lowering the cost of production while still securing global rights to distribution – something that is central to its aim to provide as much of an identical library to all subscribers as possible.

This past quarter, Netflix has announced a global pact with 20th Century Fox Studios to license The People vs. O.J. Simpson: American Crime Story and Queen of the South and an agreement with The Walt Disney Co. to license Quantico and American Crime in the US and Canada. Co-productions include Star Trek: Discovery from CBS, The Alienist from Paramount TV and the just-launched ABC series Designated Survivor from eOne. In the UK, it has also signed co-production deals for E4’s Crazyhead and ITV’s Paranoid.

With all those balls being juggled, one of the big questions Netflix faces involves ratings: if the site claims not to care about viewing figures, how does it determine what’s worth renewing and what’s not?

Hastings, for the first time, revealed some insight into the process.

“We judge the success of our portfolio of originals in several ways,” he explained. “For each series or film, we measure the impact on acquisition and member engagement which, in turn, is correlated with retention. To determine relative performance, we look at each title’s share of viewing compared with its share of our content budget. We also take into account qualitative factors such as earned media coverage and awards, which enhance our brand and our ability to attract talent for future projects. This year, we are thrilled to have won nine Emmys (out of 54 nominations) across six different shows.”

The only fly in the ointment is China, the one big market where Netflix has not yet managed to launch.

“The regulatory environment for foreign digital content services in China has become challenging,” admitted Hastings. Rather than co-produce original content in the country, Netflix now plans to licence titles instead.

“We expect revenue from this licensing will be modest,” he commented. “We still have a long term desire to serve the Chinese people directly, and hope to launch our service in China eventually.”

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