Netflix Toughening Criteria For Original Content Spend

This article was updated on July 9 to include more background on Netfilx's business model.

Netflix, known for its willingness to invest heavily in sometimes-risky new original movies and TV series, will reportedly take a somewhat more conservative approach to such decisions going forward.

With competition poised to ratchet up due to upcoming streaming services from Disney, NBCUniversal, WarnerMedia and Apple, Netflix content chief Ted Sarandos last month told the company’s film and TV executives that its investments in original programming must be more cost-effective, reports The Information.

Specifically, Sarandos said that the numbers of new viewers likely to be attracted by big-budget movies and other content will be given greater weight than ever in weighing original programming projects. 

Netflix already judges programming’s value based on a ratio of cost to viewership that puts more weight on new subscribers and those at risk of canceling. But up to now, it has sometimes given big-budget projects “a pass” if they were expected to generate buzz and enhance Netflix’s credibility in the industry, according to the report.

Sarandos reportedly cited “Triple Frontier,” the recent action film starring Ben Affleck that cost about $115 million, as an example of the type of project that might not be greenlit in future. 

The film, which was released in select theaters in on March 6 before debuting on Netflix on March 16, was streamed by 52 million viewers in April, according to Netflix — but apparently turned out to be a financial disappointment overall.

In addition to its many hits — including award-winning hit movies and series such as “Roma” and “The Crown” — Netflix has had some expensive flops, such as the one-season series “The Get Down” ($120 million) and “Marco Polo” ($200 million).

Netflix defines "original" programming as content that appears first on its platform. It produces and owns some of that content, but in many cases works with other networks to create shows, paying the production fees and then licensing fees to secure distribution, CNBC (owned, along with NBCUniversal, by Comcast) recently pointed out. CNBC cites an analyst's estimate that Netflix owns less than 10% of its original content, and Nielsen/Pachter data indicating that the six of Netflix's top 20 shows are originals, but only one is owned by Netflix. 

Netflix's 2019 costs to buy, produce and license content will be $15 billion — up from $12 billion in 2018. 2019 marketing costs are pegged at $2.9 billion. The company is expected to show $20.2 billion in revenue for the year, per analysts surveyed by Refinitiv, CNBC reports. 

Netflix has been cash flow-negative since 2014, "spending twice as much as it has an effort to differentiate itself from other streaming services" — a scenario that some analysts have asserted is unsustainable, says the report.

However, "Netflix expects its cash burn will peak in 2019, and then improve thereafter," it adds. "While the company will continue to increase its spend, it is forecasting that its subscriber growth and previous price increases will lessen its negative cash flow... some have an expectation it will hold its own against its rivals, fix its cash flow issues and come out on top. In the past, Netflix has been an adaptable company and been willing to disrupt itself when certain aspects of its business are not thriving." 

Some also say that Netflix now is simply looking to use what it's learned about what content works to log more consistent success.

A Netflix spokesperson told IndieWire that the company doesn’t discuss the specifics of its internal metrics, but confirmed that viewing in comparison to cost is one criterion, and improvement is always a goal.

“There’s been no change to our content budgets, nor any big shifts in the sorts of projects we’re investing in, or the way we greenlight them,” the spokesperson added. 

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