Yahoo Finance Is Netflix a Streaming Provider or a Major Movie Studio?
Netflix, Inc. (NASDAQ: NFLX) pioneered the concept of binge-viewing by releasing entire seasons of television programs at once. Watching multiple episodes at a sitting, or an entire season has proved wildly popular with consumers feasting on original programs like Stranger Things and House of Cards, as well as licensed content like Breaking Bad and Mad Men.
The company has similar aspirations for major motion pictures. Netflix is on track to release 50 original movies in 2017 but plans to ramp up its film slate next year. During the 2017 third-quarter conference call, chief content officer Ted Sarandos revealed that Netflix plans to debut an astonishing 80 feature films in 2018. These movies could be as small as a "million-dollar Sundance hit," or as big as Bright. The David Ayer-helmed dystopian fantasy starring Will Smith, about a world where humans and mystical creatures co-exist, cost an estimated $90 million to produce and will be available for worldwide streaming later this month.
Later this month, Netflix will release one of its most ambitious feature films yet. Image source: Netflix.
Releasing 80 movies in a year puts Netflix on a scale similar to many storied backlots in Hollywood. Is the streaming giant morphing into a major movie studio?
Lapping the competition
A review of the film slates of some of the biggest movie studios will help put this in perspective:
Studio | Films Released in 2016 |
|---|---|
Sony (Sony Pictures) | 38 |
Comcast (Universal Pictures) | 33 |
Lions Gate Entertainment (Lionsgate Films) | 24 |
Time Warner (Warner Bros., New Line Cinema) | 23 |
Twenty-First Century Fox (20th Century Fox) | 21 |
Viacom (Paramount Pictures) | 15 |
The Walt Disney Company (Walt Disney Studios) | 13 |
Data source: Box Office Mojo.
The 50 films Netflix plans to release this year are more than any major studio released last year, and 80 will simply dwarf the competition in 2018.
Quantity doesn't necessarily mean quality
Just because Netflix will put out the most movies doesn't necessarily mean they'll all be good -- and the company has produced its share of high-profile flops. Fans had high expectations for productions like Death Note, War Machine, and Crouching Tiger, Hidden Dragon: Sword of Destiny, but they were widely panned by critics.
That's not to say they've all been bad. Other features like Okja, The Meyerowitz Stories (New and Selected), and Mudbound were all rated "Certified Fresh" by rating site Rotten Tomatoes.
Just getting started
At Recode's annual Code Conference earlier this year, Netflix CEO Reed Hastings addressed why the company's movie offerings hadn't enjoyed the same success as its TV shows:
Binge-viewing is a very novel thing that we pioneered, and there's no movie equivalent... [With] things like Breaking Bad, it was transformative to be able to go back to the beginning and binge-view it. So we concentrated on where we had the most competitive advantage, that's binge-viewing. ... I think it's fair to say we've been amazingly successful at series, and we're just getting started on movies.
Hasting also pointed out that a multi-episode series gives creators more time to flesh out their characters than one 90-minute movie.
Netflix plans to spend between $7 billion and $8 billion on programming in 2018, and over the next few years to have 50% of its content be original productions, with the remainder consisting of licensed movies and TV shows. Reaching that goal will entail producing a high number of feature films.
Still just being Netflix
While Netflix has no plans to become a major movie studio, it will continue to create a significant number of movies. The increasing budget for programming is a result of the worldwide reach and economies of scale that the company enjoys.
The platform has been a hit with consumers. In its 2017 third quarter, total subscribers surged to 109 million, up 26% over the prior-year quarter. Netflix has been able to parlay its streaming popularity into financial success. Revenue jumped to $2.98 billion, up 30.3% year over year, while net income of $130 million grew 150% from the previous period.
The money the company is spending on content now will help it continue to grow its subscriber base, and an increasing contribution margin will continue to delight shareholders as well.
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Danny Vena owns shares of, and The Motley Fool owns shares of and recommends, LGF-A, Netflix, and DIS. Danny Vena has the following options: long January 2018 $80 calls on DIS. The Motley Fool owns shares of and recommends LGF-B. The Motley Fool recommends CMCSA and TWX. The Motley Fool has a disclosure policy.
