Netflix allocates $8.7 billion for creating original content in 2017

By Nick Whigham of

Photo / Getty Images
Photo / Getty Images

Netflix is putting its money where its mouth is.

In November it was announced that the streaming giant had pledged a staggering $US5 billion ($NZ7.295 billion) for producing original content this year.

The unprecedented sum led many to tout the end of the company's supreme dominance in the market. It was a risk, they said. It would tank the company's previously surging stock price, they said.

Well, despite the naysayers out there, Netflix is set to step it up again.

In the company's latest quarterly report, the streaming service revealed it will spend a further $US6 billion ($NZ8.75 billion) on original content in 2017.

The huge sum will be spent on a profit and loss basis meaning the figure could be subject to slight change but nonetheless Netflix has made a bold recommitment to producing original content.

However as the company furiously spends money on an aggressive expansion mission, is it such a good idea to be spending so much on original content?

Plenty of people don't think so - something which has perhaps been reflected in the volatility and overall lacklustre showing of the company's share price in 2016.

"Netflix shares are falling like a house of cards," Fortune proclaimed last month.

But as Forbes noted this week, compared to the traditional movie industry, the Netflix strategy is a much safer, and consequently smarter, bet.

It's not uncommon for some of Hollywood's biggest films not to recoup their costs. For example, 2015's Fantastic Four had an estimated financial loss in the range of $US80 to $US100 million. A similar amount was lost on the making of The Green Lantern a few years earlier.

Netflix's predictable revenue stream afforded by the subscription model means they can have much more certainty over their budget sheets.

At the beginning of the year, Netflix moved past 75 million subscribers worldwide.

In the most simplest of calculations, if the average customer pays $100 a year for the service, that's $7.5 billion in potentially guaranteed revenue. However unfortunately for Netflix, they have yet to figure out how to make a profit on international subscribers, so at the moment it's all about the number of domestic US subscribers which currently sits at about 46 million.

The streaming giant is also second to none in their market research. The company's use of data mining and data research to predict the success of new shows, also ensures more bang for their buck.

In the eyes of the consumer, the success of original shows such as House of Cards, Narcos and Love serve to further differentiate the streaming service from its rivals.

Either way, customers and TV fans are set to win in the wake of Netflix's renewed commitment to producing original content.

And time will tell if the company's bottom line will win as a result.


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