Netflix has entered a significant new phase of its development. The significance doesn’t lie in its phenomenal subscriber growth, rapidly hurtling towards 100 million accounts worldwide. (With multiple people potentially using each account, it’s harder to get a completely accurate number of individuals).
The real significance lies in the $6 billion that the firm will drop on original programming in 2017. To put that in context, that’s about a billion short of the total spend of the major Hollywood studios last year. Not bad going for a former mail order DVD rental business back in the 1990s.
From its first venture into programme making in 2013, Netflix shows made up half of the top ten most searched for TV programmes worldwide in 2016. They include global brands, such as House of Cards, Stranger Things and, the most expensive TV production of all time, The Crown.
It’s the combination of a winning run of original content that’s bringing in the subscriber growth, argues CEO and founder Reed Hastings:
Think of it as a cumulative effect. Very few people will join Netflix just because of a single title. But there's a tipping point. We have one more title that has great excitement, you're hearing a lot about it and that triggers you to finally sign up for Netflix.
So, it's a cumulative effect of all of these…but the basic demand creation is increasing as people get more comfortable and more aware of the idea of Internet television where you don't get the commercial interruptions, where you just get to watch when and where you want. So, those are the big drivers. And then the things that capture the demand are really these big launches that we're doing particular title franchises.
What the BBC would have done
It’s also about having ongoing successes that will build fan-loyalty and keep audiences coming back for more, not just having one-off hits, adds Chief Content Officer Ted Sarandos:
We have multiple seasons of our shows and we see that the audience continues to build cumulatively and therefore the excitement for the upcoming season builds as well. So, in Q2 of this year, we have new seasons of a lot of our very popular shows, like Orange Is The New Black, Kimmy Schmidt, Bloodline, Sense8, Master of None, and we think that they should have a pretty nice impact on our subscriber growth as well.
The biggest launch - and the biggest gamble - for Netflix in 2016 was The Crown, an incredibly ambitious series that aims to cover the whole reign of Queen Elizabeth II over a run of six series. The series did well at the recent Golden Globes awards, but for a commercial firm like Netflix, awards are nice to have, but the real question is how well received the show was with audiences.
Sarandos says there’s been a very positive response, with a particularly telling comment in there about the reaction in the UK:
It's been incredibly popular globally, there's an enormous interest in the Royal Family around the world. In the UK, it was really celebrated as something that only the BBC could do just a couple of years ago.
We were thrilled that it won at the Golden Globes for Best Drama. It was our first Best Drama Award there and we're excited, we're deep into season two now and excited to tell the rest of the story.
While Sarandos pitches the planned 1000 hours of original content in 2017 as a conservative number, he’s more keen to focus on quality than quantity:
About half of the most searched for shows on television around the world this year were Netflix Original shows and that's the kind of thing we're really proud of, even more so than the volume of it all. It’s interesting and it's an artifact of a fast growth and commitment that is so many hours, but the rest of this quarter, we still have 42 original launches to launch rest of this quarter, including shows like Santa Clarita Diet with Drew Barrymore and Timothy Olyphant, a second season of Love, Iron Fist, our latest Marvel series we'll be launching this quarter. Yes, it’s a lot of volume, but it's also a ton of quality that consumers are falling in love with.
For all its transition to original content creator and broadcaster, there’s still a mix to struck in terms of bought-in content - ironically including a fair chunk from the BBC - versus home-grown. Sarandos explains:
While it is a bit more cash consumptive, owning our own content and including our original productions has a lot of big scale advantages to the business. Probably the most meaningful one is removing the studio markup and overhead on those productions and being able to put more of that on the screen, owning the IP as we expand into multiple seasons, having control over the windows.
So I lean into both original programming and owned-original programming, but we're still very active buyer of second-window content from our studio partners. We are increasingly co-producing some of the programming with networks and studios around the world. We'll take one country and we'll premiere the show globally at the same time which takes off some of that risk and also enhances our partnerships with those networks and studios.
I do think there's a lot of value in owning the IP and a lot of value in creating new content. But we need to have great programming for our members and sometimes, we don't have that. So, we will have to go out and we're buying it elsewhere to enhance what we are doing.
Being the BBC?
All of which raises the question of what is the ultimate goal for Netflix? To be more like the BBC at a time when the BBC wants to be more like Netflix? Ultimately the BBC remains a public service broadcaster funded primarily, if not exclusively, by a mandatory license fee. Netflix may pitch BBC quality and lack of advertising, but it remains a more commercially-driven organisation.
Hastings is reluctant to be pinned down on this:
You never want to characterize something as an ultimate vision because when you get there, there's always more that you want to do. So we're taking it year-by-year. We’re growing around the world,=. We’re thrilled with our global expansion
Think of us just continuing to iterate on the basic cycle of more content, better product that combines as a great service with a great price and hopefully with that, we can attract many more people to join Netflix and then that fuels the whole cycle.
We're just going to lather, rinse, repeat again and again for the next couple years and expand that. We have a long way to go, when you think about how many movies and TV shows we don't have. We want to be able to just think about the great range of content that we have. We’re very ambitious about what we can do, especially around the world.
It’s indicative of the way that Netflix has risen that the company name is now effectively a verb. ‘What are you doing tonight?’ ‘Having dinner and Netflix’. As we Google, so we Netflix. I’m a huge Netflix fan and binge-watched The Crown over 3 days at Christmas. And yes, I did what Sarandos said and commented that this was the sort of thing you’d expect the BBC to have done a few years ago.
It’s important to remember though that the role of Netflix and the role of the BBC are two different beasts. Netflix has no public service broadcasting responsibilities and in a turbulent world I suspect those responsibilities as personified by the BBC may become something that we become much more conscious of over the next few years.