Yes, you heard it right. Netflix is ramping up its production schedule for 2018 and they have planned $8 billion in content budget to finance 700 TV shows and movies.
In 2017, Netflix produced sufficient content to amass 59 billion viewing hours but the company has bigger plans for 2018.
Precisely, Netflix aims to release 700 TV, stand-up comedy projects, and films this year. This plan was made public by David Wells, Netflix CFO on Feb. 27 during a media and telecom conference of Morgan StanleyTechnology.
Why the Ramp Up?
Content is king. Subscribers are naturally pulled toward the streamers with the best content. With Apple, Amazon, and (soon) Disney on its heels, Netflix made a smart move to raise its content game. It is a brilliant way to keep its existing subscribers interested while they lure new subscribers.
What is Expected Out of Netflix’s $8 billion Content Budget?
On the latest earnings call, Wells stated Netflix expects to spend between $7.5 billion and $8 billion on content in 2018. This huge budget will be funding 700 projects as revealed by Wells at the Morgan Stanley conference in February.
According to Wells, 80 projects will be non-English-language original content targeted toward international markets. This will assist Netflix in continuing to expand in the less-saturated markets outside of its home country. Netflix added 6.36 million international subscribers and 1.98 million US subscribers in the last quarter.
Since the move is able to lure more subscribers, Netflix is more than happy to allocate billions for its content budget year by year. Wills stated that adding content drives growth.
In 2016, Netflix bowled over some investors when it spent $5 billion on content and made an estimate it would ramp up that to $6 billion in 2017. Nevertheless, investors have become less sparing about the company’s content budget with the continued growth in subscribers. Actually, Netflix made a new record with the last quarter’s figure of 8.33 million subscriber additions.
By the end of 2017, the company had 117.6 million global subscribers. However, Wells added there are still more non-Netflix subscribers in the world. He stated worldwide, there are approximately 700 million broadband users not including China, implying that the company has a long runway when it comes to subscriber growth.
Netflix discovered that marketing spend is vital to encourage the high-quality content that it’s paying billions for yearly. The company mentioned last quarter to investors that it is raising the marketing budget from about $1.3 billion in 2017 to around $2 billion for 2018.
Netflix’s Golden Formula Demands Expensive Talent
Apart from extensive content and marketing budgets, Netflix’s golden formula also includes expensive talent. The company has made a finding that hiring the best production talent makes its job easy. Ted Sarandos, Netflix chief content officer commented it is best to hire great people, provide them the resources to create great content and get out of their way.
Of late, Netflix signed a multiyear contract with creator Ryan Murphy. Previously, Murphy was at Twenty-First Century Fox and is responsible for hit shows including Feud and American Horror Story. Netflix is paying Murphy a stunning $300 million for his five-year contract. Wells said it is because Murphy has been a very successful and productive producer of television that was very commercially successful.
Of course, making such a lucrative contract is not the new norm. Murphy is an exception said Wells, as he has the background to provide evidence that he knows how to make content that appeals to large audiences. The company is satisfied with the type of content he produces in terms of being popular internationally, not just in the U.S. Murphy creates a lot of customer joy, Wells explained.
Ted Sarandos, the chief content officer said there is no religion at Netflix when it comes to the source of programming. People do not bother where the stories come from although; Netflix intends to produce its own content.
Netflix had signed a deal with Shonda Rhimes prior to Murphy. It was said to be worth $100 million. The former ABC Studios creator is recognized for international hits including Grey’s Anatomy and Scandal. Netflix was willing to make a big deal with Rhimes for the same reason, Wells mentioned. Rhimes has the reputation to prove that she knows how to create content that appeals to international audiences.
In addition, Netflix has multiyear contracts with Jenji Kohan, Orange is the New Black creator and GLOW executive producer, and with Shawn Levy, the executive producer of Stranger Things. There has also been some talent poach. Netflix hired Melissa Cobb, in September, who is the head of the studio at Oriental DreamWorks to be in charge of its series and films for children and families.
Whilst funding $8 billion on content or $300 million on a 3-year contract might seem extravagant now, it won’t be a year from now. Disney has decided to pull its content from Netflix and begin its own competing streaming site. Already, Netflix has several competitors, but Disney may be its biggest one yet, with its best-seller movie business, wide intellectual property, and awaiting acquisition of Twenty-First Century Fox.
Netflix is making some gigantic steps to stay ahead of the rising competition. Netflix is doing a good thing. We know that by now as Amazon bought Whole Foods last June. Sometimes it just takes one overnight move for an underdog to unexpectedly come out on top in a market.
Both Opportunities and Risks for Creators
700 projects from a single network, although a global streaming network with almost matchless scale is extraordinary for the entertainment industry. It provides also an enormous opportunity for producers, including TV studios and digital media companies, who would like a piece of Netflix’s massive $8 billion content budget.
And for Netflix, which is trying to present content that pleases all types of interest across its 118 million subscribers, the plan makes sense. However, where there is an opportunity for producers, there is also a risk of their shows getting lost in an increasing sea of content. There is no guarantee they’ll ever get discovered or watched.