Netflix (NFLX 2.97%) releases more original series and films than any other media-streaming service, and more than most traditional media companies, too. However, one analyst thinks the streaming leader may need to spend even more to keep its subscribers engaged and coming back month after month. 

Michael Nathanson from MoffettNathanson analyzed Nielsen streaming data and found that "Netflix will need to continually refresh their original content pipeline to keep viewers engaged."

With a growing number of streaming options for consumers, subscriber churn is increasing. Netflix needs to do everything it can to keep its subscribers loyal. Is the answer even more originals?

Netflix offices in Los Angeles.

Image source: Netflix.

What the data says

In the third quarter, Netflix had 40 original series reach the top 10 of Nielsen's U.S. streaming list. Among those 40 series, none of them accounted for more than 1.5% of time spent on Netflix. Additionally, original films draw even less viewership than original series. Still, Nathanson believes original films are important for driving new sign-ups in mature markets.

Nathanson concludes that the data shows Netflix originals don't produce enduring viewership over time. Therefore, it needs to provide a constant stream of new originals for viewers to watch.

By contrast, several acquired series such as Grey's Anatomy, Manifest, and Cocomelon each surpassed 1.5% of total view time. That makes sense. Licensed series generally already have a big back catalog of episodes, and Netflix is particularly interested in series with broad appeal. Grey's Anatomy, for example, is in its 18th season and has 380 episodes on Netflix. As such, licensed series can do a better job at keeping subscribers engaged than originals.

However, Nathanson points out that opportunities to license old series will become fewer going forward. "With major media companies clawing back content for their own streaming services," he wrote, "we believe Netflix will need to rely even more on originals to provide compelling content for their subscribers."

What's missing?

Even Netflix's most popular original series generate a small percentage of the total viewing time on the service. Is that a failure of the originals to entertain and provide enduring value, or is it the result of generally high engagement with content on Netflix?

In 2019, Netflix said that its average subscriber spent two hours per day on the service. During lockdowns in 2020, that number may have climbed above three hours per day. With the average series release offering just a few hours of new content, it's unlikely existing subscribers will watch enough of a new series to account for a significant amount of additional watch time.

With so much content to choose from, it's more likely subscribers will use Netflix as a default general entertainment choice instead of only watching a specific title. Meanwhile, competing services may see originals account for much more of total viewing time because subscribers sign up specifically to watch a hit series.

What Netflix needs originals to do is drive new sign-ups. That's the hard part but all indications are that it's succeeding in that regard. Once subscribers sign up, the service has a boatload of content and a recommendation engine fueled by a ton of viewer data that can keep them engaged for the long term.

Netflix will face a challenge going forward as it has fewer opportunities to license content. That may push the streaming service to devote more of its growing content budget to originals. But originals with just a few new episodes per year simply aren't going to produce the enduring engagement of a series with hundreds of episodes. Nor do they need to do that in order to be a success.