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4 Reasons Netflix Cancels Its Original Programs

By Stephen Lovely – Aug 20, 2019 at 7:04PM

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The company has been canceling a lot more shows than it used to.

Netflix's (NFLX -4.49%) longest-running shows tend to be its oldest ones: Orange Is the New Black, for instance, ran for seven seasons. It's not just that the old shows have a head start. Netflix has become more and more willing to cancel even relatively new series.

The past couple of years have been particularly rough for Netflix originals. The company axed a slew of popular shows in 2018 and 2019, including several Marvel series, fan favorite American Vandal, and critical darling Tuca & Bertie.

Scissors cut a video cable in front of cash.

Image source: Getty Images.

So what's happening? As it turns out, Netflix's higher cancellation rate exists at the confluence of a few major factors.

1. Keeping it in-house

Earlier this year, I covered a few Netflix cancellations that fit a profit-minded motive. Netflix has been making originals since House of Cards debuted back in 2013, but some originals are more "original" than others. Netflix has its own studio, but it has also partnered with outside studios on original content: For instance, American Vandal was made in partnership with CBS Television Studios.

The fact that many of Netflix's cancellations target these partnerships is not a coincidence. Netflix's content strategy is more financially sound when it owns as much of its original content as possible. When Netflix has to pay outside studios, that's inefficient. Shows in that category are more likely to get the ax.

2. Here comes the competition

Some outside studios make more comfortable partners than others. American Vandal's CBS ties might have chafed a bit. Jessica Jones and Netflix's other Marvel series had an even bigger problem.

Like some other original series, the Marvel shows were made with the assistance of outside studios. But in the case of Marvel, that studio was Walt Disney-owned ABC Television. And with Disney poised to release its own streaming service, Disney+, featuring a bunch of Marvel content on that platform, it's pretty clear that Marvel has no future with Netflix. Even if Netflix had wanted to keep or expand its Marvel content, it's hard to imagine that Disney would go along with that idea.

3. According to their calculations

Netflix is a movie and TV company, but it's also a tech company. And like so many other tech companies, Netflix makes extensive use of data. Netflix knows what people watch, and it knows how much its shows cost to produce. That means that cancellation decisions are being informed by some very cold calculations.

The effect is visible in Netflix's decision making. Management seems to be partial to three-season runs -- a disproportionate number of original series are being cut before they turn four. That seems to be the cost-benefit sweet spot, and Netflix appears to be willing to act on that even despite fan outcry.

4. The usual reasons -- presumably

Netflix CEO Reed Hastings thinks that cancellations are good, actually. He's on record as saying that the company should take "more risks" and experiment in a way that makes higher cancellation rates inevitable. Hastings' statements don't totally gel with Netflix's dispassionate cancellations on financial and strict cost/benefit grounds, but Hastings insists that most Netflix shows are cancelled for boring and predictable reasons: "Mostly, it's how many people watch."

Putting aside the matter that the audience figures required to keep a full Netflix original afloat might differ from those that an original from an outside studio needs, there's an obvious fact-checking problem here: We don't know how many people are watching each Netflix show. The company is notoriously cagey about those figures (and releases pretty fuzzy numbers when it does decide to share).

We also don't know how Netflix is using its recommendation algorithms and whether shows like Tuca & Bertie are getting a fair shake -- a gripe that the creator of the series has hinted at in public comments.

Ultimately, one thing is clear: Netflix is no longer coddling its originals. The company is quick to cut shows that it sees as underperforming and to trim the fat on less efficient programming. Massive hits like Stranger Things might be safe, but other shows should watch out.

Stephen Lovely owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool has the following options: long January 2021 $60 calls on Walt Disney and short October 2019 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.

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