Scalability is a beautiful thing at Netflix (NFLX -3.28%), and when investors think about the leading premium streaming service's stellar growth, the top bullet point has to be how the platform is parlaying its success into even more content. Netflix expects to spend $7.5 billion to $8 billion on content this year, up from the roughly $6 billion it shelled out last year.
Spreading out costs across its rapidly growing audience makes it easier to bankroll high-end original shows and movies, and grows its already massive catalog. It's usually money well spent, as Netflix's scale and business model mean it has more data on viewing habits and preferences than anyone else. It's not a coincidence when you finish binging one series, and Netflix has another hot original show waiting for you that's just your style. It's science.
The merits of scalability don't end there. If you're a studio you'll turn to Netflix first -- money aside -- because it will put your product before the largest possible audience. Scalability has also helped Netflix expand quickly into international markets, despite the nuances of each particular country that leave lesser rivals on the outside looking in. However, there's another juicy benefit when it comes to scalability that the market typically doesn't consider: employee recruitment and compensation.
Image source: Getty Images.
Bloomberg is reporting that Netflix keeps poaching key talent from rival TV networks, securing recruits by offering as much as double their pay including stock and other benefits. Netflix is about to overtake CBS in revenue this year despite having half the staff. Heavy content and marketing costs aside, why wouldn't Netflix pay more? Scalability matters.
Whatever works
Netflix is on a roll. It's coming off yet another blowout quarter, and unlike old-school outlets we're not seeing users flinch at higher price points. Over the past four years we've seen the monthly price of Netflix's flagship streaming service rise by 38%, going from $7.99 to $8.99 to $9.99 to $10.99. Its audience has grown by 143% since the initial increase.
This is the network effect in action, but it's not just subscribers, investors, and content creators celebrating the scalability. This win-win-win situation is actually a win-win-win-win scenario when we consider the folks toiling away at Netflix. The ability to offer up heartier compensation may be the mother of all carrots, but that's really just the beginning.
Pull up a Netflix stock chart. Now pull up the price action of any traditional media giant. If you're weighing similar offers -- and we already know they're not in some cases -- which stock options would you want vesting? In terms of morale, no one in the industry is unaware of the cord-cutting revolution. Everyone knows that Netflix is the one leading the way in the one market that's actually booming.
Scalability provides the means to do so much, but it also means the ability to write bigger checks. Netflix announced earlier this year that it's boosting its marketing budget from $1.3 billion last year to $2 billion in 2018. Even research and development -- an afterthought at many media dinosaurs -- will be a $1.3 billion line items at Netflix this year.
Netflix landed a record 8.33 million net subscriber additions in its latest quarter, but there's no doubt that it also attracted more than a few key difference makers on the personnel front. Scalability slays. Netflix pays.
