It’s no secret that the major subscription video on demand platforms Amazon and Netflix have rapidly increased their content spend, reaching similar levels to traditional TV groups.
But Netflix’s content spend is now comparable to a premium channel group or platform, marking a re-focus of the company’s overall strategy. With original content also central to success and a catalogue refinement underway, Netflix is repositioning as a premium channel play.
Daniel Gadher, Analyst at Ampere Analysis says: “Netflix’s growth has relied heavily on geographic expansion to date, but, with its global launch, that road has now run out. Increasingly, Netflix is re-engineering as a premium channel play and its content spend, as well as the refinement we are seeing in its content catalogue, reflect this. Netflix is clearly re-positioning as a premium channel in a strategy that differs considerably from that of Amazon. This duality of approaches will see the two operations increasingly carve out parallel but separate niches.”
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– At 60% of revenue, Netflix’s annual content spend is now comparable to a premium channel group or platform. Netflix spent $4.7bn on content in 2016. That’s nearly twice Amazon’s $2.7bn annual bill.
– Proportionally, this level of spend puts Netflix on a par with premium platform operators like Sky and major national channel groups like ITV and NBC.
– The refinement of Netflix’s strategy is also reflected in its approach to content. Over the last year, Netflix has reduced the volume of content that is more than five years old in its US catalogue by 43%, while increasing the proportion of original content. Netflix clearly sees its future as a premium channel play.
– Netflix’s annual spend will rise to nearly $6bn in 2017.
– Original productions have become central to the SVoD platform’s content strategy, and this is where much of the money goes. Netflix is targeting a 50/50 split between acquired content and original productions. Ampere Analysis forecasts indicate that Netflix will pass the 50% mark for original content spend by 2021.
– Netflix and Amazon have very different business models. Although Amazon’s level of SVoD content expenditure against revenue from its video service is currently high, it is at a similar level to
– Netflix’s at the same point in its video development. Amazon is further able to use its retail business to supplement its content investment strategy, but has been positioning strategically as a platform content operation rather than a channel.