For the first time in its history, Netflix (NASDAQ:NFLX) scored more Oscar nominations than any other studio. The streaming giant's total tally was 24 nominations, which beat out Disney's (NYSE:DIS) 23 and Sony's (NYSE:SNE) 20.
Netflix earned Best Picture nominations for Martin Scorsese's The Irishman and Noah Baumbach's Marriage Story, Best Actor nominations for Adam Driver in Marriage Story and Jonathan Pryce in The Two Popes, a Best Actress nomination for Scarlett Johansson in Marriage Story, Best Supporting Actor nominations for Anthony Hopkins in The Two Popes and Al Pacino and Joe Pesci in The Irishman, and a Best Supporting Actress nomination for Laura Dern in Marriage Story, along with 15 others.
Nominations and awards are great
There's no question it's great for Netflix to earn these accolades. The more positive press and general buzz the company and its content receives, the better it is for its subscriber numbers and future growth. It's also incredible how far Netflix has come considering it only released its first original content, the political series House of Cards, in 2013, and only made its first movie about four years ago. So to have just earned more Oscar nominations than Disney, even after Disney's mega-merger with Fox, is remarkable.
Netflix's co-founder Marc Randolph tweeted his astonishment at this turn of events:
Talk about plot twists and surprise endings! I never imagined this outcome. In 1998 if I told you my little co., in an old bank, its vault stuffed with DVDs, would someday get more Oscar noms than any studio? You would have had me committed.
But Netflix is optimizing for engagement over "quality"
While nominations and awards are great for the company, that's far from the only driver of its success. In fact, I'd argue it's just one driver of many. Netflix has such a large subscriber base -- 158 million and counting -- because it has a tremendous quantity and variety of content. There is something -- many things in fact -- for everyone. So when Netflix's critics dismissively argue that it's just a "volume play," suggesting it focuses on quantity over quality, they're absolutely right. Not every piece of content on Netflix is going to be Oscar or Golden Globe material.
Nor should it be. Importantly, that sort of material is not the only content that people watch. There's plenty of very popular content on linear television that's never going to win awards. In fact, that's the majority of what's on television. Shows like The Real Housewives or Bachelor in Paradise are on television because they get watched by a sizable audience.
It is the quantity and variety of programming, not just its quality, that's allowed Netflix to become so big. Rather than target a niche or just focus on a limited amount of "quality" content -- however that might be defined -- Netflix saw the opportunity to be all things to all people. To be that, it needs as much content as possible that people watch, regardless of how that content may be characterized.
It needs all the niche content as well as mass appeal content. It needs award-winning content and low-brow content. It needs comedies, dramas, action movies, mysteries, documentaries, foreign films, animated movies, and all other forms of video entertainment. That's how it is maximizing its global appeal, and maximizing subscriber engagement.
At the end of the day, Netflix optimizes for engagement above all else. The more a subscriber watches Netflix, the more value they get out of it, and the more likely they are to remain a subscriber. So engagement drives retention, which helps maximize the number of subscribers, which increases revenue with which the company can reinvest in even more content, which improves the service and drives more subscribers. And the virtuous cycle repeats. That's Netflix's secret sauce and the playbook they've executed since they pivoted from the DVD-by-mail business to the streaming video-on-demand business.
So if you're a Netflix investor, it's great to cheer on the company as they get celebrated for making "quality" content. Just remember, it's the wide variety of content that's really driving the business forward. Quality is just one piece of the puzzle.