2016 The Library awakens

In the beginning was the word......and the word was "ORIGINAL!"

Netflix was so keen to show the vast amount of Original contents owned to label ORIGINAL almost everything on their service. Than they started to shake the very very foundations of this market starting producing their own shows at an impressive pace and increasing costs, adding more and more cherries on the big luscious cake they were offering to their subscribers. 

And this strategy worked, everyone can name 2 or 3 of the Netflix real Original Shows (wheater or not they watched them is another story of course). But with this strategy Netflix was officially on the Premier league Map. A brand known for renting DVD via web become an household brand meaning quality content like HBO or FOX. This success nurtured the idea that the people were driven by the Original in choosing Netflix so....well let' s produce more and bigger series/Docs/Feature Film. But......this came at a cost, the highly expensive Original productions produced demanded a sacrifice on the altar of the final profit and, following the idea that Originals were driving subscribers, Netflix started to cut the library. In the last four years by 40%. On the other hand the company decided to start its way up on the price ladder, increasing the fee by 1$. 

The increase in price was probably overrated as their offer still a good value for money deal, This increased in price though, was blamed by both the market and Netflix as the reason why the company experienced the slowest rate of subscriber growth in its history.

But the idea that Netflix subscribers — including those who were previously grandfathered in under old pricing schemes — would brazenly cancel their subscription over a meager $1 price increase just didn’t make a whole lot of sense to some, including CNBC’s Jim Cramer. Appearing on Squawk on the Street on Tuesday, Cramer instead laid out an opposite theory, namely that users are canceling their subscriptions because of a lack of content.

“Something happened here where people decided that content wasn’t worth paying for,” Cramer said. “I would never in a million years say I’m not paying the additional couple [of dollars].”

Now is this to say that the content on Netflix is no good and that the company’s big bet on original content isn’t paying off? Not quite, subscriber churn may simply be a function of Netflix’s dwindling library of content.

As we’ve highlighted before, the quantity of titles in Netflix’s library has dwindled dramatically over the past few years (40%), largely due to Netflix spending most of its money on developing new series as opposed to securing licensing deals with content providers.

Data shows that is true that few titles (mainly their Origrinals) delivers the majority of streamings (confirming the importance of their productions in aggregating viewers), but the same data also show that the total usage of the service is made up of thousands of small consumptions on a lot of titles. The quality and dept of the library is, hence, also of paramount importance. Nothing dramatically different from a PayTV channel, where the few big titles in Prime Time are capturing more eyeballs and are more PR friendly events but is the quality of the library working horses that makes the final difference

Sure, one can reasonably argue that the quality of content on Netflix has gotten measurably better, Netflix’s laser like focus on original content may leave some viewers looking for something to watch once they plow through everything Netflix has to offer.

Exstreamist also makes a good point of noting that Netflix’s original movie strategy may not even be a good use of its funds, and we’re inclined to agree.

We struggle to believe that spending $90 million on Will Smith movies is sustainable or the right strategy for the streaming service. Certainly, despite having total ownership over this content, that money could easily be spent elsewhere. As a benchmark, Hulu paid $180 million for the rights to stream ‘Seinfeld,’ likely one of the most expensive television shows, for five years. We’d much rather have half of the Seinfeld catalog than one movie when it comes to paying for a streaming subscription.

This is a very insightful point, especially because spending all that money on a multi-year series gives viewers a whole lot of content to watch. Take Seinfeld, for example. There are 180 Seinfeld episodes which translates to approximately 72 hours of Television to watch. On the flip side, Netflix invests untold millions into original movies which yield 2 hours worth of content to watch at the most.

One of the original success factors for Netflix was undoubtedly the fact that the contents you could find there (even most of the one labelled as Originals), were already well known to the public, with the hard work of making them known being done by the linear broadcaster that aired them previously. Netflix’s focus on original content puts now the company in a position where it’s constantly trying to advertise its shows and get viewers interested. And with so many new shows hitting Netflix every single month, it’s somewhat tough to keep up with everything new coming down the pipeline. In contrast, a library full of already popular TV shows and movies makes it easier for viewers to find something they’re already familiar with. If The Americans comes to Netflix, for example, the existing buzz around the show would immediately translate over to Netflix without first requiring Netflix having to explain to users what the show is all about and why they might be interested.

All that said, the quality of Netflix’s original programming simply cannot be questioned as the streaming giant continues to get better and better. It just might be nice to see what will happen when its content library will become less significant for the viewers leaving us all, again I would say, eager to find a place to watch the TV shows we already know and love.