Please ensure Javascript is enabled for purposes of website accessibility

It's All About Member Satisfaction for Netflix

By Anders Bylund – Oct 21, 2020 at 2:27PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If you build it, the subscribers will come -- and they might bring a few friends, too.

Video-streaming giant Netflix (NFLX 0.41%) reported third-quarter results on Tuesday evening. Management used the report and the earnings call to give investors and customers an update on how the production of Netflix originals is shaping up after the spring's COVID-19 pause. Original content is a key ingredient in Netflix's business plan, so this was a welcome update.

A red Netflix logo on a gray stucco wall.

Image source: Netflix.

The shows must go on

Longtime Chief Content Officer and freshly anointed Co-CEO Ted Sarandos dove headfirst into the content production issue.

"Since the COVID shutdowns, we've completed production on over 50 productions, and we expect another 150 before the year is over," he said. "So all that ramp up puts us back to nearly fully operational in most parts of the world."

The shooting is going a little slower than originally planned in many cases because safety policies for the coronavirus disease naturally make it more difficult to run the filming sets at full speed. That being said, the content machine is back in action around the world again.

"Everything that we forecast for '21, we expect to hit in '21 with a few minor exceptions and some maybe a little more back-weighted than we had planned for last year, but we have planned it all coming out," Sarandos said.

In other words, the production slates for both 2020 and 2021 should turn out roughly in line with Netflix's projections at the start of this difficult year. The nitty-gritty details of the original production schedule have changed a bit, but everything looks similar in the bigger picture.

Why original content matters so much

Later, Netflix founder and Co-CEO Reed Hastings reminded us why the production of high-quality shows and movies is so important.

"For at least the last 5 years, we've realized there are no gimmicks. There are no techniques. It's fundamentally about member satisfaction," Hastings said. "And if we please you on a Wednesday night, you're more likely to come back on a Thursday night."

That people-pleasing approach gives Netflix less room to handpick a few projects to support with strong production quality and massive promotion. The company is playing to an extremely diverse audience of 195 million viewers spread around the globe, so it's more important to come up with something good for every conceivable taste. Hastings added the following observation:

You can juice a given title if you wanted to, but you're going to pay for it downstream because not everybody got the best title for them ... Or you can juice sign-ups or you can juice any particular metric, but it's all just very distorting. And the fundamental for us is member joy, which we look at as how much of your viewing time you choose to spend with Netflix, how many repeat days, what's retention, all of those aspects.

An actress in a red dress and oversized glasses smiles behind the film crew's clapper.

Image source: Getty Images.

The big picture

That's the exact mentality that brought Netflix this far. If you build a great content portfolio, subscribers will come. And if you keep providing a great experience, those subscribers will tell their friends. Word-of-mouth marketing is a powerful concept but only as long as the product is good.

This way, Netflix has established itself as a global leader in the nascent media-streaming space. The subscriber list grew 23% longer over the four quarters and expanded by 79% in three years. The company stands on the threshold of generating positive free cash flows for the long haul, though CFO Spencer Neumann won't commit to that promise just yet; Netflix will probably burn some cash in 2021.

So there you have it. Netflix intends to premiere at least 150 more original content titles before the end of 2020, and next year will see even more Netflix originals. The growth story continues to play out on a global stage.

Anders Bylund owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.