Original Content: The secret to Netflix’s success
James R | On 16, Jul 2015
Netflix now has over 65 million members around the world – more people than in the whole of the UK.
The streaming service soared pass the figure in the second quarter of 2015, new figures reveal today, with 3.3 million new customers signing up – higher than the 1.7 million in the same quarter in 2014 and a record for the March-June period. The amount also outperformed Netflix’s own expectation of 2.5 million additions.
0.9 million of those came from the US, while 2.4 million members joined in international territories, taking its domestic total to over 42 million in the US and its international total to 23 million.
What’s the secret to Netflix’s success? CEO Reed Hastings attributes the growth to Netflix’s original content, which in Q2 included Marvel’s Daredevil, Orange is the New Black, Grace and Frankie and Sense8.
Its overseas expansion is also paying off at a “rapid pace”, despite the company not launching in any new territories in the past three months. With the March 2015 launch in Australia and New Zealand helping to fuel growth between April and June, Netflix expects its entry into Japan, Spain, Italy and Portugal during the second half of the year to continue the trend: the company forecasts 2.4 million new international customers in Q3 2015, higher than the same three months last year.
“We continue to explore options [in China],” added Hastings in a letter to shareholders.
The original content effect
“We are making great progress shifting to exclusive content and expanding our original content, which differentiates our service, drives enjoyment for existing members and helps motivate consumers to join Netflix,” wrote Hastings.
Netflix has placed a growing emphasis on its original content over the years, positioning itself as a producer as well as a distributor. The tactic has paid off, with other streaming services – from Vimeo to even Sony’s PlayStation – now following suit.
Netflix’s response has been to accelerate its drive into original waters even further: this past quarter saw the site release its highest number to date of Netflix series. While Netflix does not disclose exact viewing figures, it has highlighted “strong audience engagement” for the first of its Marvel series and the “broad and appreciative audience” for Grace and Frankie, which features older stars Lily Tomlin and Jane Fonda. (Both have promptly been commissioned for second seasons.)
Broad and appreciative are two of the central aims of Netflix’s content team. As Grace and Frankie highlights, the streaming giant is commissioning an increasingly varied range of productions, from a growing number of kids’ series to a large collection of comedy, both stand-up specials and sitcoms.
That diversity is evident from Netflix’s most viewed new originals to date: original documentary series Chef’s Table and the DreamWorks Animation series Dragons: Race to the Edge.
“They are the perfect example of what we strive for in our original programming; an elevated version of popular genres that reach a large audience globally,” added Hastings.
Its push for original content, though, is also fused with its plans for global expansion. Licencing deals for third party titles are expensive and only give Netflix rights to shows or films in certain territories, but original content can be released by Netflix in all of its markets. It is no secret that Netflix would like to own worldwide rights to its catalogue – behind the scenes tussles with studios over customers accessing other countries’ versions of Netflix via proxy are a hint of the problems facing the company as it grows. In an online age, exclusives are useful, but originals are essential.
At the same time, Netflix is also tailoring its original content to suit its diversifying target audience. Last week, Gerard Depardieu was cast in Marseille, Netflix’s first French series. Last month, Sense8 premiered a globe-trotting production with stars and locations in multiple countries. Next month, the company’s first non-English language original, Club de Cuervos – a family comedy set in the world of futbol from Mexican filmmaker Gaz Alazraki – will launch, followed by cocaine thriller Narcos, shot in Colombia and starring Brazilian actor Wagner Moura as Pablo Escobar.
Orange Is the New Black, a multicultural melting pot in its own right, has also been a huge success: Season 3 of the show landed on Friday 11th June. Two days later, Netflix members globally watched a record number of hours in a single day.
“Global enthusiasm for the third season of Orange underlines our ability to create franchise properties that bring new members to Netflix as well as delighting current ones,” added Hastings.
Indeed, almost 99 per cent of Netflix members have “engaged with” Netflix original content to date.
It is logical, then, that Netflix should move into original feature films too. After a string of acquisitions, particularly in the non-fiction field, Netflix will be releasing a host of fictional movies in the coming year, both in cinemas and online on the same day. The slate begins with Beasts of No Nation, directed by True Detective’s Cary Fukunaga and starring Idris Elba, which arrives day-and-date in October.
“As with series, we’ve chosen to take a portfolio approach covering a wide variety of genres and based around creators with great track records and stories they are passionate about,” commented Hastings.
As Netflix continues to aim higher, so does its budget: Netflix’s global content spend will approach $5 billion in 2016.
How will they cover the cost? By expanding into more countries – something that will be fuelled by the appeal of its expanding original content.
In Q2 2015, international revenue grew 48 per cent year over year. International losses, though, also rose, thanks to the added operating costs of delivering content to Australia and New Zealand. The company, though, is committed to breaking even on a net income basis through 2016, with global profits forecast for 2017 onwards. It’s a risky model, but if it can continue outperforming its expectations, by then, Netflix might as well declare itself a country in its own right.