On its earnings call Wednesday, Netflix’s top executives laid out a vision for its future that can be summed up in one word: “originals.”
CEO Reed Hastings said original shows like “House of Cards” and “Orange Is the New Black” are what actually creates “desire,” and presumably loyalty, in Netflix subscribers – not licensed content.
Originals get you addicted, and addicted to the point where you might be willing to pay a few extra dollars a month.
While Hastings refused to make predictions about the future pricing of Netflix, he said it was inherently tied to value.
“The more we have incredible value, the more we have amazing originals, then we are going to be able to ask consumers for more to be able to invest more,” he said. In plain English, original content is expensive, and you are probably going to have to pay more for it as Netflix doubles down on original content moving forward.
Research has shown that Hastings isn’t just blowing smoke about original content –subscribers love it. And it certainly does provide tremendous value to viewers. Whether they will appreciate repeated price hikes over the next few years is less certain.
Netflix recently raised the price of its most popular subscription plan in the US from $8.99 to $9.99, and will spend $5 billion on content next year. Hastings recently said that Netflix only has around $2 billion in the bank, though it’s set to raise capital.
Netflix is betting heavily that a shift to original content, and toward exclusive licensing in general, will allow the company to maximize its profitability. Netflix’s head of content, Ted Sarandos, characterized originals as a sounder investment because they give full exclusivity and global rights in perpetuity – which will be particularly useful as Netflix expands internationally.
“We have gone into [original content] very conservative relative to licensing, and found it has been much more impactful,” CFO David Wells said. Hastings used one word: “better.”
Hastings also argued that the value of Netflix’s original content grows dramatically as shows enter their third and fourth seasons, and become recognizable franchises. This theory will be tested in the coming years.
What we know now is that the development of original content is accelerating at a much higher rate than licensed content – and you’ll most likely have to pay for that on your plan.