Netflix, Inc. (NASDAQ: NFLX ) has recently reported plans to double its investment in original content and programming in 2014. Total investments are expected to represent less than 10% of the company's overall global content expenses. The tremendous success surrounding original programs such as Orange is the New Black and House of Cards has created a lot of buzz around the Netflix brand. Netflix's Ted Sarandos, Chief Content Officer, said:
What we've seen is, is that some of the original content has got a particular halo effect on the brand that creates a stickiness that we're liking the signs of, for sure. And that's why we are continuing to invest in that space.
Netflix is looking to move more aggressively toward content that fulfills an on-demand experience for the user. One way that Netflix is able achieve this is by breaking the mold of the traditional TV model and offering all episodes for a TV series at once.
According to Netflix, having all episodes available at one time is something that customers really love. The company views the production of original content as a vehicle for increasing on-demand programs for subscribers.
Netflix as an investment
As an investor, Netflix is a very attractive company. Netflix reported revenue of $1.1 billion in the third quarter of 2013, which is a 22% increase from last year's third-quarter revenue of $905 million.
Netflix is a very profitable company and recently reported $0.52 earnings per share in the third quarter of 2013. The company is well-positioned to tackle future investments in original content to assist in building its subscriber base. Investors should carefully watch as Netflix increases investments in original content. One way to gauge the success of these investments is to look for the continuation of expanding revenue and an increase in subscriptions.
Amazon is producing original content, too
Amazon (NASDAQ: AMZN ) recently began producing original content and debuted its first original series, Alpha House and Betas. Episodes are available to Amazon Prime members through the Amazon Instant Video service. New episodes are made available each week.
Unlike Netflix, Amazon has adopted the traditional TV model by releasing new episodes on a weekly basis. The company believes that rolling out a new episode each week allows creates more social buzz around the series.
Investors should carefully monitor the success of Amazon's new original programs. The question is whether or not the traditional TV model lives up to the "instant" part of Amazon's Instant Video service. As Amazon continues to invest in original programming, watch for growing subscriptions to Amazon's Prime service. New subscriptions might be an indicator of user interest in Amazon's original programming.
Redbox Instant, a separate entity from Redbox that operates as a joint venture between Verizon (NYSE: VZ ) and Redbox owner Outerwall (NASDAQ: OUTR ) currently sets its focus on a movie-only business model. Redbox Instant CEO, Shawn Strickland, said in an interview with adage.com:
We are not Netflix and don't try to be. We are focused on movies and want to reach the movie lover that still values the DVD. We are looking to attract and market to the right consumer -- it's not the person who is totally moved over to streaming and packed away their DVD player. Redbox Instant may not be for them. Neither is it for those that are still totally entrenched in the DVD.
The company debuted the Redbox Instant streaming service earlier this year, yet the company is already looking into the possibility of creating original content. Strickland told the Ad Age Digital Conference in New York, "As a streaming video service, I don't see how you can avoid having original and/or exclusive content."
Strickland indicated that the company is unlikely to become involved in original programming this year. Original content is likely to be more of a long-term strategy for Redbox.
Redbox may have aspirations to become a producer of original content, but such goals seem counter to the company's current DVD and movie focus. As an investor, look for Redbox Instant to increase subscriptions and get more exclusive content licensing for movies. Also, look for the company to expand into television programming, which could help grow the Redbox Instant service.
The bottom line
Continued investments in original content will likely help grow the Netflix and Amazon Prime subscription base. New original content will also increase social buzz and brand awareness for these companies. The question that remains is whether users will prefer Netflix's on-demand full-series releases or Amazon's weekly episode roll-out.
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