Netflix: $8 Billion and 700 NEW Shows?

How much programming is Netflix actually making?

The answer is a lot, but I think that the widely reported numbers are a little misleading.

Heavily retweeted earlier today was this:

I’m not trying to pick on one person; these are figures that have been reported elsewhere.

Most pieces reference a Variety story: Netflix Eyeing Total of About 700 Original Series in 2018. But you’ll note that the Variety headline includes the word “total” in it.

The key section of Variety’s report is this:

The “700-range” figure [Netflix CFO, David Wells] cited includes 80 non-English-language original productions from outside the U.S., such as psychological thriller “Dark” from Germany and “Club de Cuervos” from Mexico. The total encompasses both new and existing original series (such as “Orange Is the New Black” and “Narcos”). [My emphasis]

In other words, this is a cumulative figure and represents the total number of original series on the platform.

It does not mean an additional 700 originals!

The Variety report is based on an investment call that Netflix had, and as is the way with these things, the transcript of the call is available online.

Here’s the relevant section:

Unidentified Analyst
Right. So moving from maybe the big-picture stuff to more into here now. What are your priorities for 2018? Where are you focused and where is the team focused in making sure the company executes this year?

David B. Wells – Netflix, Inc. – CFO & Principal Accounting Officer
Well, I think — a lot of what you hear many of us say is internal execution, right? So we think we have a large market. We just talked about there’s so many more nonmembers than there are members, and so our focus is really to continue to improve the product that we have. We’ll be adding increasingly more and more of our originals in our global content. This year, we’ll have 80 originals in the global category, meaning these are non-English language original produced content things, like Club de Cuervos, Dark — O Mecanismo is a new one coming from Brazil. And so the — our muscle in that area is increasingly being built and exercised, and I’m excited about lots of great stories coming from different parts of the world. And again, people seem to love high production quality and a good story. It doesn’t really matter where it comes from. So I think our focus is building out our production muscle, building out our global production muscle, increasing our product in various parts of the world. We’re the newest in Asia. So I’d say it’s continuing to sort of localize pieces in Asia, continue to improve the product there. But we also have an eye towards not losing our leadership position in other parts of the world as well. So it’s not like we’re not also improving the Americas.

Unidentified Analyst
You mentioned 80 global originals. That’s TV series, so that’s distinct from your film strategy?

David B. Wells – Netflix, Inc. – CFO & Principal Accounting Officer
Yes. That’s distinct to film, and it’s even distinct from television series that you might describe as sort of global, like Orange Is the New Black or Narcos. These are things that are produced in a non-English language market. So I just want to make that distinction. So there’s even more than 80 that are sort of for the global market. If you think about the total number, it might be somewhere in the 700 range.

That makes clear that there are 80 original “global” originals – non-English language originals. And there are 700 in total. They obviously measure movies differently, and categorise them separately, but then they are still both commissioning original movies and also buying them outright after festivals such as Sundance, beyond the regular licencing of movies from studios. Ted Sarandos, Netflix’s Chief Content Officer has previously said that they will release 80 original movies in 2018.

But how do you even determine what is a Netflix original? It’s not that simple.

Stranger Things or Narcos are relatively simple. They’re 100% Netflix. But for others it’s less clear. For example, in the US, the science fiction series The Expanse appears on SyFy, but it counts as a Netflix original in much of the rest of the world. Star Trek: Discovery appears in the US on the CBS All Access streaming platform. Everywhere else it’s a Netflix Original. Troy: Fall of a City is currently airing on BBC One and was co-commissioned by both the BBC and Netflix where it’ll appear globally.

Even seemingly homegrown series like Orange is the New Black and House of Cards, aren’t strictly Netflix exclusive. Orange is the New Black is currently airing on the Sony Crime channel in the UK, having done a deal with Lionsgate the producers. In France House of Cards originally aired on Canal+ since there was no Netflix in France and the producer, MRC, was able to sell it to them. On more recent 100% Netflix commissions, it has reportedly tightened contracts to prevent that programming appearing elsewhere – unless they choose to allow it.

In any event, a Mashable report makes clear that this 700 number includes some of these co-commissioned series:

A Netflix representative told Mashable that this content budget includes properties we already know and love like Stranger Things, as well as licensing content from partners like AMC’s The Walking Dead.

Note that The Walking Dead is not available on, for example, UK Netflix, because Fox International has the rights and they distribute it on Sky’s platform in boxsets.

It should also be pointed out that “originals” can include one-offs as well as series or seasons of shows. Think about all the stand-up comedy specials that Netflix is commissioning.

So to summarise, there will be 700 originals in total at the end of 2018, which includes new commissions, previous commissions and co-commissions.

Netflix is definitely spending a lot, although it’s in the ballpark of what other large media companies also spend each year. But it’s not launching new series at the rate of two a day!

They’re also losing money – negative free cash flow in the parlance. I’m not arguing that there isn’t an underlying business model that makes sense, but it’s worth noting all the same. The theory is that as they build up their library of originals, they don’t have to licence as much third party material (See also the recent news that Disney won’t renew their Netflix deal and will shift their output to their own new streaming platform).

Netflix faces the issue of needing to have relevant programming in multiple local territories, and while there’s value in older series, viewers will continue to seek new programming. Netflix will have complex calculations about how much it needs to spend on new programming versus catalogue versus subscriber growth versus how much it licences. It’s a complex grid.