Netflix Just Lost Nearly 1 Billion Hours Worth of Content

Netflix (NFLX +0.96%) lost some valuable content rights on Jan. 1 this year. Fans of The Office can no longer watch the series on the service. They'll have to subscribe to Comcast's (CMCSA 1.34%) Peacock in order to catch Michael Scott's antics. 

That's a big loss for Netflix. U.S. subscribers streamed 57.1 billion minutes of the sitcom last year, according to Nielsen. That's by far the most popular of any show on streaming platforms.

While it's a big loss for Netflix, it remains to be seen how much of The Office's popularity was due to Netflix and how much the series actually drew an audience to the streaming service. Peacock's hoping it's the latter, but the rest of Nielsen's data suggests the show's recent resurgence has more to do with Netflix's strength.

Image source: Netflix.

What will Netflix subscribers watch?

While The Office was by far the most popular content on any of the streaming services tracked by Nielsen, the list was dominated by Netflix. See the top 10 shows by minutes streamed in the U.S. last year (original series in bold):

Data source: Nielsen. Chart by author.

Notice a pattern?

Netflix completely dominates streaming time across genres and target audiences. It has also managed to get some of its originals in the top 10 despite having fewer episodes of them than the long-running, licensed series that make up most of the list.

The company is capable of pushing users to whatever content it believes will maximize the efficiency of its content spending in the long run. Remember Tiger King? It has the best billboard in the business -- the streaming platform's home screen. "It turns out the best place to talk to [subscribers] about Netflix is on Netflix," co-CEO Ted Sarandos said on the company's second-quarter earnings call in July.

In addition, with so much data on its subscribers' viewing habits, Netflix will be able to maintain engagement even after losing The Office or any other licensed series. No one piece of content makes Netflix.

Will stronger competition hurt Netflix?

While Netflix could certainly stomach losing its top content in a vacuum, the reality is The Office and other top content are going to its competitors. As mentioned, the most-streamed series of 2020 is now on Peacock. Additionally, Disney (DIS 0.62%) pulled its films from Netflix over the last few years in preparation for Disney+.

Disney is already showing off the strength of its library and its ability to attract subscribers and increase engagement. Disney+ has 87 million global subscribers as of last month. Shows like The Mandalorian are a big reason why. In fact, The Mandalorian was the most-streamed series in Nielsen's most recent weekly tabulation, besting The Office. And this was for a week in mid-December, so the series was still on Netflix at the time.

But Disney's success with original series and films may be more a product of its excellent marketing and messaging around Disney+. Millions of consumers were planning to sign up for Disney+ well before the public knew about Baby Yoda. The ability to get a series like The Mandalorian in front of an audience may have been more instrumental in making it popular than the content itself.

That's where Comcast may face a challenge. The company said Peacock had already signed up 26 million accounts as of last month. That's a sizable audience, to be sure. But management remains quiet around how much engagement it's seeing. Investors should look for an update when Comcast reports its fourth-quarter results later this month.

Where Netflix's advantage lies is in its ability to spend its content budget more efficiently than competitors thanks to its large subscriber base and bounty of viewer data. Comcast paid $500 million for the streaming rights to The Office. Netflix can likely get the same level of engagement from far less spending because of its home-screen billboard. 

That gives Netflix more flexibility in its content budget and ensures it doesn't have to overspend, while other streaming media companies spend big in hopes of attracting an audience. Ultimately, that'll show up in Netflix's cash flow as it retains and adds subscribers without spending more than it has to on content.