Netflix had a pretty good year by very Netflix-y standards: it added a ton of subscribers; its international growth plans seem to be playing out as hoped; it cleaned up in the Golden Globe nominations, and users are watching a ton of Netflix.
While the company has continued to show growth with its existing strategy — investing a ton in its original content strategy in the hope that it’ll convert Emmy and Grammy awards into subscribers — it’s going to get more expensive. Netflix has basically acknowledged that as it says it’s going to ramp up its original content and marketing spend, and in October said it would raise up to $1.6 billion in debt. In short, its strategy that worked this year will, in theory, play out next year as it looks to continue putting out strong original shows.
The company has said it expects to spend between $7 billion and $8 billion on original content, a clear sign that it’s going to double down on that strategy that seems to have given it a pretty successful strategy in 2017. It had to raise prices, which could create a bigger barrier to consumers. But if all goes well, a successful repeat of that strategy — which means it has to continue to come out with great shows — will help it continue to grow where it needs.
The company’s performance as a whole has made it look quite good for Wall Street. Netflix’s share price has risen more than 50% in the past year. That carries with it a whole batch of benefits: it looks great as a public barometer for the company, it means the company can woo talent with good compensation packages, and it keeps away activist investors that are looking to agitate change in the company. The whole time this is happening, Netflix’s content costs are ballooning, but that seems to have yet to faze investors.
And that’s a group that, for better or worse, Netflix needs to keep happy. Netflix is going to have to grapple with an increasingly competitive group including Hulu and Amazon, which are now churning out shows that are getting similar accolades to Netflix’s best series. Hulu came out with The Handmaid’s Tale, which received high praise, showing that there’s an opportunity to go after Netflix’s sweet spot with its own original content.
If Netflix is going to have a repeat of 2017, it’s going to have to figure out how to both keep picking up users (with a strategy that seems to be working in place) and keep them from flipping to other services. Each service offers some unique original content, but they also have huge backlogs of content that serve as the backbone of a video streaming service. With rising prices, Netflix has to ensure that it makes good shows, but also ensure that it creates an experience that keeps people coming back to watch — whether that’s through improvements in its recommendation engine or a robust backlog of content that it can keep signing on.
Netflix passed a pretty significant milestone when it comes to its international expansion plans: (slightly) more than half of its subscribers now come from outside the U.S. Its users are watching around 1 billion hours of content per week (that’s billion-with-a-B). Its spending on original content appears to be working there, too, with internationally-oriented shows like 3%. Its user base appears to be growing, though it’s not clear when it’ll hit that absolute saturation point where it has to start figuring out what the next generation of products looks like.
That may be something along the lines of allowing offline viewing of some shows, which it began in November this year, or it may be improved recommendation engines to help a user discover that they like Twin Peaks as much as they’d like American Vandal. Either way, it still seems like there’s an overhead that Netflix hasn’t quite hit yet as it continues to beat Wall Street’s — and its own — expectations for subscriber growth.
So we’ll see if the company is not only able to continue to churn out that content but also actually have the capital to stick to that aggressive spending plan it set for itself. That, and it probably needs to stop creeping on its members.
Comment