Netflix (NFLX 0.91%) may be facing increasing competition, but it's safe to say it's the only one that can boast over 51 billion hours of streamed content last year.
The Los Gatos, Calif.-based company is benefiting from its healthy head start on amassing a loyal base of subscribers and learning how to produce top-quality original movies and shows to keep them entertained.
Netflix shares rose nearly 60% in 2017 as investors noted that the company has barely scratched the surface of its international market and still has room to grow in the U.S.
As Netflix looks toward another year of billions of hours of streaming across the globe, let's look back at why Netflix is set to tear up 2018.
Netflix continues to add subscribers to its video streaming service. Image source: Netflix.
$7 billion on content well spent
Netflix spent an incredible $7 billion on content in 2017, but the time spent on its platform and continued subscriber growth are both evidence that its strategy is working.
The company has maintained that it thinks spending the big bucks on high-quality content is worth it to keep current subscribers interested, as well as to lure in any potential customers that are on the fence about adding another subscription to their monthly expenses.
In early December, Netflix released its stats for the year. Over the year, Netflix members across the globe watched more than 140 million hours of content per day, which translates into one billion hours per week.
Going forward, Netflix said it wants to continue to increase its content budget as a way to keep up its top-tier movies and shows as it battles increasing competition from the likes of Amazon (AMZN +0.55%), Apple, and soon, Disney (DIS 0.68%). In 2018, Netflix expects to spend $7 billion to $8 billion on content, Netflix CFO David Wells said on the latest earnings call.
"Our future largely lies in exclusive original content that drives both excitement around Netflix and enormous viewing satisfaction for our global membership and its wide variety of tastes," the company wrote in a letter to shareholders in October.
Again, $7 billion on content well spent
Netflix has seen its subscriber number increase each year since 2007. And this past year, some investors thought the trend might reverse, or at least slow down, because Netflix had maxed out on its potential U.S. customers. But they were wrong.
Last January, Netflix started the year out with a bang by announcing its biggest ever quarterly subscriber growth. For the 2016 fourth quarter, the company added 7.05 million subscribers, and Wall Street sent the stock up about 10%.
Throughout the 2017 fiscal year, Netflix continued to add subscribers, though it never hit the growth seen in the last quarter of the 2016 fiscal year. The streaming site added 5 million subscribers for the first quarter, 5.2 million in the second quarter, and 5.3 million in the third quarter.
And the fact that Netflix managed to add 850,000 subscribers in the U.S. in the 2017 third quarter proves that the domestic market has yet to mature. The U.S. growth was also above Wall Street's expectations for 810,000 U.S. subscriber additions for the quarter.
With the 2016 fourth-quarter subscriber blowout still somewhat fresh in investors' minds, all eyes are on Netflix as it prepares to announce 2017 fourth-quarter earnings on Monday, January 22 after the market close. Could this be another record quarter?
No year can be a perfect year
Unfortunately, the perfect year for a public company doesn't exist. Not even for a site that can boast over 51 billion hours of streaming in a single year.
In early August, Disney announced that it would be ending its deal with Netflix in 2019 in order to start a competing service. Not only does Netflix lose Disney's content, but it also has to fight off yet another competitor.
When Netflix announced its earnings in November and boasted 4.45 million international subscriber additions, the company's CEO, Reed Hastings, claimed it was a sign that the company's growth story was fine without Disney.
Netflix believes it has come this far from sticking to its strategy to spend money on producing high-quality content not only in the U.S., but also abroad, in order to earn its keep as a monthly expense for millions of people.
While this might be considered neutral news to some, Netflix also had to increase its price last year. In October, the company announced a dollar increase to its $9.99 per month plan, and a $2 increase to its $11.99 per month plan. Those on the $7.99 budget option were unaffected.
In January 2018, Amazon announced a similar price increase to its Prime membership program, which grants members access to movies and TV shows, including Amazon originals. Membership is increasing from $10.99 per month to $12.99 per month.
This is significant because Amazon spent an estimated $4.5 billion on content in 2017 but said it wants to increase its investment in video in 2018.
"We remain very bullish on the video business, and we're looking forward to a lot of interesting new projects at the back end of this year and also lined up into next year," Amazon CFO Brian Olsavsky said in the earnings call.
Amazon also took home two Golden Globes in January for its original comedy show, The Marvelous Mrs. Maisel. While Netflix scored nine nominations for the Globes, it only took home one award, best actor in a television comedy for Aziz Ansari's role in Master of None.
Netflix has its work cut out for it as it seeks to defend its top position in the market from increasingly legitimate players. But if 2018 is anything like 2017, Netflix is going to have another blowout year for content and, in response, subscriber growth.
