Netflix nudges 100m subscribers but what next for the streaming giant?

In just a decade the firm has risen from a mail order DVD outfit to a global TV player and maker of hits shows such as The Crown and House of Cards

Netflix is on the cusp of reaching the 100m subscriber mark as productions such as The Crown and Stranger Things lure viewers away from cinemas and TV schedules in binge-watching droves.

The company, which started as a mail order DVD outfit two decades ago, could pass the benchmark as soon as next week in another symbolic blow to Hollywood studios and network broadcasters who are frantically adjusting their web-ravaged business models.

Not only is the California-based firm eating into box office queues and mass TV audiences, it is producing content that established media empires are struggling to better.

“Binge viewing and this idea of cool content, like The OA and Stranger Things, has hit a chord with young people in particular. They are cynical of being told when to watch shows on linear TV,” said Boyd Hilton, entertainment editor at Heat magazine.

“Shows like [teen suicide drama] 13 Reasons Why are very honest and raw and I’m not sure you’d find that on terrestrial TV and old school channels. Netflix has taken the model of [US cable channel] HBO, which revolutionised quality TV drama with shows like The Sopranos, and flown with it.”

The strategy is a critical success, with The Crown winning Golden Globes for best drama and best actress – for Claire Foy – while The White Helmets won an Oscar for Best Documentary Short in January. The business goes from strength to strength financially, with revenues of $8.8bn (£7bn) last year and profits of $186.7m. Netflix also makes its Cannes film festival debut next month, where it will screen The Meyerowitz Stories, starring Adam Sandler and Ben Stiller, and Okja a monster film featuring Tilda Swinton and Jake Gyllenhaal.

Netflix bosses say they are already focused on plans to keep ahead of rivals and win the company’s next hundred million fans, by expanding its global subscriber base and ramping up investment in its own content. Its latest quarterly results on Monday will confirm the addition of millions more subscribers to a business that at last count had just under 94m customers. Some analysts believe that a Netflix forecast of 99m for the latest quarter is too conservative and the 100m barrier could be breached.

However, as Hollywood and traditional TV broadcasters scramble for a firm footing in the digital landscape, Netflix is having to change too.

subscriber growth

Netflix original productions such as 3% – a Brazilian post-apocalyptic drama – and French political thriller Marseille, not to mention the British-made The Crown, are harbingers of an increasingly global creative strategy. In the meantime, its back catalogue is being shorn of older Hollywood films and TV programmes. Just try finding the Addams Family on Netflix this weekend.

“When Netflix launched it had tonnes of everything but it has been clearing out older titles [in the US],” said Richard Broughton, an analyst at media consultancy Ampere Analysis. “The average title is now newer, the decline has been in the older category of titles, shows and movies over five years old. Generally, the trend has been for Netflix to be investing more in its international catalogues, increasing their title count.”

In its home market Netflix has dramatically slashed its back catalogue. The expiry of a deal with the Miramax studio has forced titles such as Kill Bill and Bridget Jones’s Diary to disappear, while the first Mission: Impossible and the older Star Trek films have all been deleted. The big returning titles this year are not film sequels but new series of Netflix smashes: House of Cards, Stranger Things, Orange is the New Black and Bloodline are all returning.

Referring to the catalogue changes, Broughton added: “To some extent, churn in catalogue is always going to happen – it’s how services keep their platforms looking fresh – but these are examples in a wider trend of focusing the catalogue on newer and more targeted acquisitions and original content.”

Netflix had about 4,400 feature-length films and seasons of TV shows on its US service in February, down from 5,000 two years ago, according to Ampere Analysis. This compares with Amazon, which is competing toe-to-toe with Netflix with a globally available catalogue of 9,000 titles and its own homegrown hits such as The Man in the High Castle and The Grand Tour. Amazon does not publish membership numbers for its Prime Video service.

“It is clear to us that high-quality content travels well across borders,” Netflix said in January. Examples include 3%, which was not only a hit throughout Latin America but proved popular subtitled with English-speaking audiences. It followed in the footsteps of Narcos, the hit Colombian drug war series which has a substantial amount of Spanish language that is subtitled.

Last month, Netflix co-founder Reed Hastings revealed that Netflix has spent more than $1.75bn on European-made productions, including originals, licensed shows and co-productions, since 2012. It is currently working on 90 original productions in Europe including the first from Spain, period drama Las Chicas Del Cable (Cable Girls), which debuts on 28 April. There is also mafia drama Suburra from Italy and German thriller Dark.

Since launching its original production strategy four years ago investment in its own shows has surged to in excess of $1bn annually and is continuing to grow fast, according to analyst estimates.

But the pressure on each new series grows. Ampere estimates that at its “current trajectory”, Netflix’s subscriber growth could plateau at 160m in six years without an overhaul of its business model.

Netflix is in a constant race to produce significant subscriber growth – which is the almost singular focus of investor and analyst attention – in order to produce the revenues to re-invest in shows that will draw new customers.

It is a low-cost model. In the UK it typically charges £7.50 a month compared to pay-TV rivals who get 10 times that from bundles of TV, broadband and phone. This means it operates at thin profit margins which would be difficult to sustain if the business moves into lower growth mode. In the US a basic Netflix package is $8 per month.

Investors view Netflix as needing to squeeze more money from each subscriber, while expressing concerns about a rapid increase in content spend. Sir Martin Sorrell, the chief executive of advertising group WPP, has said he believes Netflix could ape pay-TV players by introducing adverts.

But until that happens, Netflix remains a revolutionary player in the entertainment market and its army of followers is growing.


Mark Sweney

The GuardianTramp

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