As part of its third-quarter earnings report, Netflix released a letter to its shareholders announcing its intention to invest $7-$8 billion on content in 2018.
In its last quarter alone, Netflix added a reported 5.2 million subscribers to its streaming service, outstripping its forecast growth of 4.4 million. At the end of the period, the company now has approximately 104 million subscribers worldwide. The company says that this is largely due to its portfolio of original content it is investing heavily in.
“Investors often ask us about continued access to content from diversified media companies. While we have multi-year deals in place preventing any sudden reduction in content licensing, the long-term trends are clear,” it said in a statement.
“Our future largely lies in exclusive original content that drives both excitement around Netflix and enormous viewing satisfaction for our global membership and its wide variety of tastes. Our investment in Netflix originals is over a quarter of our total P&L content budget in 2017 and will continue to grow."
The company continued: “With $17 billion in content commitments over the next several years and a growing library of owned content ($2.5 billion net book value at the end of the quarter), we remain quite comfortable with our ability to please our members around the world. We’ll spend $7-$8 billion on content (on a P&L basis) in 2018.”
In the letter the company also confirmed its first and only M&A transaction, buying Millarworld, the site of comic book writer Mark Millar, for an undisclosed amount.
Following on from the second-quarter partnership with SFR/Altice in France, it also announced a new partnership with T-Mobile US which includes the bundling of Netflix into its ONE family plan.
Competition wise, with Disney announcing plans to launch its own direct-to-consumer services for ESPN and its other brands, the company notes that cable network owners are licensing their channels to virtual multichannel video programming distributors (MVPD) like Hulu, YouTube, Sling TV, and DirecTV Now. It says that Apple is expected to spend roughly $1 billion on original content and Amazon has begun streaming NFL games while its Prime Video service has gone global. In addition, Facebook is launching its Watch tab for original videos. But Netlfix says it is doubling down on its original offerings and plans to ‘improve Netflix as rapidly as possible’.
Earnings for the quarter were unsurprising positive, with global streaming revenue up by 33% year-on-year, driven by a 24% increase in average paid memberships and 7% growth in ASP.
A recent report from analyst CCS Insight found that 16 million VR and AR devices will be shipped in 2017, up 47% year-on-year, but this will increase to almost 100 million devices over the next five years. Mentioned in the report was content as one of the key drivers of the market, with a number of wholesale firms beginning to provide specific content delivery networks to support growth in demand for TV and content services, driven by the likes of Netflix. It appears as though AR and VR may be another avenue to Netflix to explore to enhance its content over the coming years.
In the October/November issue of Capacity Magazine, James Pearce explores the rise of OTT (over the top) service providers and the shift consumers are making from linear TV to internet-based entertainment. You can find a copy of the feature here.