Netflix Needs to Grow, But What Options Does It Have?
Innovation and expansion are two major components to any successful business; constantly innovating on their quality, and expanding the company to capture addition streams of revenue. In the world of streaming, an example of this is Amazon Prime’s ‘Channels’, an ‘a-la-carte’ style expansion recently introduced in Canada. Another example is how Hulu offers a subscription tier that includes streaming of live TV in addition to their respective streaming library. While Netflix has been innovating, with Choose-Your-Own-Adventure content like Black Mirror: Bandersnatch, they have yet to make significant expansion with their platform.
While Amazon Studios is continuously creating original content of its own, Amazon Channels allows subscribers to bundle alternative streaming services with the Prime Video app. For a small monthly fee, Prime subscribers can access additional networks that focus on their interests, such as reality TV with hayu. or the horror genre with Shudder. Amazon’s aim with Channels is to connect the ever-growing sea of streaming services in one central app, and soon to become a major sporting event broadcaster. Hulu, with their 1/3 parent Comcast, offer a similar idea in their highest subscription tier where members can stream live TV channels from their area.
Netflix, for the most part, functions on the same platform they have had since going digital – collect streaming rights and offering it to anyone with a subscription to their service. The giant has since adopted the idea of creating their own content, as well as diversifying the format of their content, but ends the expansion there. Netflix has returned to the idea of immersion multiple times, initially introducing the collaboration of Phillips Hue Sync with their service and with the recent Hack Day, the invention of a rumble feature. Rather than expand their company outward, Netflix seems to have invested in the idea of doubling-down on their current services. Instead of becoming a catch-all like Amazon, Netflix is arguably looking at becoming an alternative to movie theaters.
This direction is not a poor business decision for Netflix though, as the company continues to be increasingly popular. Despite being the most expensive monthly service at the relatively new price of $13 a month (compared to Amazon’s $10, Hulu’s $12, and AppleTV+’s proposed $10), Netflix’s subscriber count has averaged an increase of 5% per quarter since the beginning of 2016. In 2016 the company made $8.8 billion from their $5 billion budget, 2017 ended with $11.7 billion profit from $6 billion, and 2018 saw $15.7 billion profit from $12 billion. In short, even with Netflix estimated to spend $15 billion or more on content in 2019, the company will most likely continue profiting.
This profit faces a serious issue though, as there is a growing popularity for networks to reclaim their properties in favour of launching their own streaming service. Two of the most popular shows on Netflix, Friends and The Office (US) are owned by NBC but licensed to Netflix through contract. Even though Netflix paid $100 million to keep exclusive streaming rights to Friends, the contract will end at the end of 2019 just in time for NBC’s own streaming service to begin in 2020. To make matters worse, shows like Supernatural, The 100, everything in the DC Universe, and Riverdale, could be affected by The CW’s decision to end their partnership with Netflix.
Though Netflix relies strongly on these series to maintain quality of service, the streaming giant has plenty of original content that drives viewership and subscription growth. Plenty of the $15 billion budget for content goes to series like Stranger Things, The Umbrella Academy, and the growing list of reality TV shows. The budget also extends to Netflix Original movies such as Bird Box and Murder Mystery, both of which set viewing records for online streaming. Bird Box’s 45 million in the first week and Murder Mystery’s 30 million in the first three days are on par with many Marvel movies, highlighting a potential stream of revenue for Netflix.
Considering the national average of $9 for a movie ticket, Bird Box would have made $405 million in its first week, while Murder Mystery could have made $270 million within the first three days. As Netflix-based content, though, their exact revenue is hard to determine. One could even argue that being part of a streaming service diminishes their revenue unless they specifically attract subscribers.
This is where Netflix could increase revenue without upsetting their audiences. Rather than introducing advertisements to the streaming experience as other services have done, Netflix could offer premium viewing options like advanced viewing of series or shows. Fans of Stranger Things, and the anxiously-awaited season 3, could opt to pay a small price to watch the new episodes in the week preceding July 4th, the original release date. For movies a movie like Bird Box, which was received with a cult following almost immediately, the movie could be accessed early for half the price of a movie ticket. Anyone wishing to wait could watch the movie with their standard subscription upon release, but any avid genre-fans or interested individuals could forego the $9 movie ticket for a something like a $4 pre-release viewing.
While this seems a little out of character for Netflix, the alternative is something that could cause quite a stir. In addition to the cheaper, ‘mobile-only’ plan being tested in select countries, Netflix has been playing with the idea of including advertisements in their service. Little is known about what kind of advertisements would be aired in that possibility, whether it be the inter-service ads like on Amazon Prime, or if they would be general ads, like on Hulu’s cheaper but ad-supported subscription tier. Regardless, advertising experts such as Tara Walpert Levy, YouTube and Google’s Vice President of Agency and Media Solutions, argue that Netflix is “going to need growth”, in this case with advertisements. An idea that contradicts one of the most valuable promises of the cord-cutting movement.
While Amazon, a service that brings businesses together under one website, can do the same with their streaming service, and Hulu can broadcast the live TV from their parent company, Comcast, Netflix capitalizes on something different. Netflix’s allure has always been the concept of thousands of movies available for a small monthly subscription cost. With the need to increase revenue as time goes on, though, this could become Netflix’s biggest issue.
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