What Show Cancellations Tell Us About Netflix’s Content Strategy

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Recently Netflix (NASDAQ:NFLX) announced that few of its shows – such as Sense 8 and The Get Down – will not return for another season. While the streaming giant is not known for cancelling shows, its CEO believes that it is time for the company to be more calculating about shows, which will lead to a higher cancellation rate.  Netflix is evaluating the return on investment on its original shows and discontinuing the ones which are not generating enough viewers, relative to the cost of the investment. The company is banking heavily on original programming to retain and grow subscribers. Its nearly $6 billion investment in content is the highest among its peers, and it appears that the company is now looking to be a bit more judicious with its investments to optimize viewership. By ensuring that its content budget is spent only on shows which have high viewership, Netflix can ensure that it appeals to as wide an audience as possible and retain its competitive edge.

Content Quality Key Factor For Competitive Edge

While Netflix is increasing its content budget to stay ahead of players such as Amazon and Hulu, the company has to ensure that its spending on original programming generates a high return on investment. Higher investments in content impact the company’s margins, as it cannot consistently increase subscription rates given the competitive landscape of the streaming market. With Amazon in the fray, Netflix will have to keep subscription rates in control in order to grow subscribers. At the same time, the company has to ensure that its original programming is of high quality and provides enough variety to attract and retain its global subscribers. Trying out new shows for a season and continuing those which become popular – similar to traditional TV networks – will give the company more room to introduce different kinds of shows without the burden of continuing them for several seasons. Having a higher cancellation rate would allow the company to take more risks and discontinue shows if they don’t fare well. This strategy could ultimately lead to more interesting shows from Netflix.

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Another challenge for Netflix given its variety of original content is that it can be difficult for Netflix to promote all of the original shows it currently has. A focus on fewer shows and high-quality curated content on its platform can help Netflix retain its edge over other players and distinguish itself from Amazon – which is focused on a wide range of content, including live streaming.

Netflix’s content strategy now appears to be focused on quality rather than quantity. We believe this strategy should work in the company’s favor as it looks to retain its competitive edge and allocates its content budget to shows which are more likely to generate higher returns.

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