Aware that the proof of its plan for global availability within two years lies in the quality of its programming, Netflix is putting its money where its mouth is by planning to spend $3 billion this year alone on 320 hours of original TV shows, documentaries, comedy specials and movies.
That’s three times its 2014 spend on this make-or-break area.
As always, the OTT subscription TV service provider is keeping its foot on the gas pedal having rolled out its services in the U.S., Latin America, Cuba this week and Australia and New Zealand by the end of next month, according to a detailed letter to its shareholders from CEO Reed Hasting.
Just Wednesday, the serial innovator accidentally made the new season of its groundbreaking original series House of Cards available two weeks early, blaming the problem, which it fixed, on a “technical glitch.” This incident got it more media attention than the company’s last trip to an awards show.
One analyst from MoffetNathanson believes expanding beyond 50 countries will result in content owners wanting a higher premium over production for international licensing than Netflix currently pays which would raise content expenses and therefore impinge on Netflix’s financial performance going forward.
It’s a very real challenge for Netflix, one of several the OTT service provider will face as it quickly moves beyond the 50-country availability mark today to about 200 countries within two years. Others include content security to address rampant international piracy and rollout issues in countries beyond Western Europe.
Hastings says he has earmarked $500 million for technology spending this year and an additional $600 million for marketing. But as MoffetNathanson pointed out, challenges to quality programming may result in Netflix having to ride out rough weather on the spending and financial fronts.
Proof of the Netflix’s plan is in the programming. When it comes to the international expansion of a service, availability is only about half the battle. Making Netflix’s content magnetic enough for consumers in these areas to sign up for is the more important half.
Beyond its low price point, programming has been a vital part of Netflix’s success. One need’s only look to the continued success of its $100 million House of Cards original series as proof of its commitment to programming punch. The company followed suit with other original offerings and is now planning a Game of Thrones-like offering for all ages.
And offering its original “original” series in different ways has helped Netflix learn more about consumer viewing consumption that its rivals. Providing all episodes of an entire House of Cards season at once added a new dimension to binge TV viewing that rivals have not yet addressed.
UHD in Question
Though quality needs to continue as an overriding theme with Netflix, Hastings doesn’t seem to be overwhelmed by ultra-high definition (UHD) programming, which offers four times the resolution of 1080p. Perhaps that’s because that when you think and act on talking a streaming service worldwide, the percent of potential subscribers with the prescribed 25 Mbps of Internet connection bandwidth in not that high.
It’s important to note that Netflix does offer some UHD (4K format) programming for its service, but, like pay-TV providers, appears to be taking something of a wait-and-see approach in this area. Purchases of UHD TVs needed to fully enjoy 4K programming depend on pricing and the willingness to go beyond 50 inches to truly notice the difference in resolution from 1080p are gating factors.
Like anything else regarding the evolution of TV, it’s subject to change.
For those wanting shows beyond Netflix’s expanding lineup of original programming, Netflix added many seasons of those like AMC’s Walking Dead and FX’s Justified to its lineup. This pleased followers of the two popular shows and those looking to start from the beginning and catch up toward the current season during long winter nights and time off. Add in Sundays, Mondays and Thursdays, now without NFL games and you get the picture.
Obviously, the quality of the original programming is paramount. Captivating content is king in most any video enterprise. Netflix will have to take great pains just to meet the bar it for OTT series as it has with House of Cards. That means avoiding a mass production, speed-wins approach to creating, marketing and launching them, especially in new foreign markets.
Replace and Augment
Introducing the Web TV service, and especially lowering the barrier to entry in traditional TV markets led Netflix to partner with service providers overseas to provide the streaming service through the same set-top boxes currently used to deliver the incumbent’s pay-TV service.
Expect that strategy to continue beyond Western Europe because Netflix realizes its service is used not just as a replacement by cord-cutting consumers but also as a supplement to cable TV-type services.
But in the end (the future) continuing to rake in award nominations and trophies is the key to Netflix’s success in its international conquest. The challenge, to borrow a onetime tagline from Ford Motor Company is to keep quality job one.
Founder, Fast Forward Thinking LLC
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