Netflix’s Gamble On Original Content Appears To Be Paying Off

House of Cards

I’ve been enjoying Netflix’s original content a great deal. House of Cards was incredibly entertaining – largely thanks to Kevin Spacey’s devilish central performance – and I’m part way through Orange is the New Black and I’m loving every minute. In addition to their large catalogue it’s certainly keeping me signed up to the service. And it would appear that I’m not alone.

According to a report at Variety, a new consumer survey by RBC Capital Markets has found that,

43% of Netflix customers said original content was a “moderately” to “extremely” important factor influencing their decision to keep the service.

And that,

68% of current Netflix subscribers are “not at all likely” to cancel their subscriptions in the next three months, with just 2% “extremely likely” to do so, the best customer satisfaction ratings in more than two years, according to RBC.

The original content that is helping to keep Netflix customers subscribed doesn’t come cheap though, with Netflix projected to spend $150 million in 2013. But it’s incredibly important that Netflix has their own content and doesn’t have to rely on content that others have the ultimate control of – “he who controls the Spice controls the universe”.

Netflix has encountered issues previously with rights holders significantly increasing the amount they charge Netflix for their content and this has led to a lot of content dropping off the service, unlikely to ever return.

A number of companies that have large quantities of content sitting in the libraries have also realised that they can follow the Netflix model and create a service exclusively for their content. It seems likely that there could be a time not too long in the future when companies such as Sony or Disney launch successful unlimited streaming services for catalogue titles. Warner Brothers seem to be doing pretty well with their Warner Archive Instant service.

The stronger Netflix’s position in the market is, the less likely it will be that companies will make this leap. It’s much easier to license their content to Netflix, not worry about all the hassle of running and marketing a service, and just sit back and cash the cheques each month.

What’s perhaps most interesting about Netflix’s current strategy, of creating high profile original content which then sits alongside a large quantity of catalogue titles from other companies, is that it’s really not that far removed from what television companies already do.

HBO are, of course, the most obvious comparison point but there are many others. Television stations that run commercials generally use the same approach too,  the revenue streams and delivery method just differ.

The most important difference of course is that Netflix has its feet planted very much in the 21st century, with a delivery method that is in line with what consumers, particularly younger consumers, want. On demand, unlimited and available wherever they are and on whatever device they choose to view it on.

There are alternatives to Netflix available but at the moment Netflix seem to be in a very powerful position and these latest results from the RBC survey seem to suggest that betting on original content is a long term gamble that could well pay off very well for them.

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