The introduction of new streaming platforms has led multiple studios to pull licensed content from Netflix (NFLX -1.13%). While the company's loss of 200,000 subscribers in the first quarter of 2022 shook the streaming world, here's why continued losses of licensed content could be equally detrimental to the company.
The losses that keep coming
Increased competition in the streaming industry has hit few companies as hard as Netflix. The company previously enjoyed years at the top, controlling the majority of the market share. As a result, numerous studios and networks were eager at the chance to showcase their content via licensing deals with Netflix. However, times have changed.
January 2020 marked a defining moment in the streaming industry when the NBC sitcom Friends left Netflix. Then, exactly one year later, the equally popular NBC sitcom The Office also left the service. The shows represented the first and second most-watched series on the platform before their departure, both heading to their parent company's streaming services -- The Office to NBCUniversal's Peacock and Friends to WarnerMedia's HBO Max.
Netflix's library has continued to shrink since then as licensing agreements end. July 1 saw the removal of Criminal Minds from the platform as it migrated to Paramount+. The loss will be significant, as Criminal Minds was 2021's most-streamed show in the U.S., outperforming all Netflix Originals with 33.9 billion minutes watched over the year. The departure of the popular crime drama makes the third year in a row that Netflix has lost one of its top-performing series.
Additionally, the Netflix content library has shrunk by 35% since 2015, with its movie library down 55%. The company is rebuilding its library with Netflix Originals, sinking millions of dollars into content production. In 2021, the streamer spent $17 billion on content, up from $11.8 billion in 2020. The company's efforts have resulted in 40% of Netflix's library being originals, with projections for that number to increase to 50% by August. While that is positive, it also requires originals to be equally as popular as licensed content.
Are Netflix Originals enough?
Consumers have long used Netflix as a content aggregator. The rise of streaming competition has meant studios and companies with large catalogs of original content are directly competing with Netflix rather than fueling it. As a result, the streamer is under immense pressure to go up against experienced entertainment companies such as Disney, which has a substantial library of legacy titles. Although Netflix essentially founded the streaming industry, it is now playing catch up to create content that its competitors have had decades to accumulate.
From June 13 to June 19, the Netflix Original Stranger Things was the streamer's most-watched show after the launch of its fourth season, with 2.95 billion minutes. The second was U.S. Original Peaky Blinders with 904 million minutes. Licensed content filled out the rest of the top five most-watched series. NCIS took the third spot with 817 million minutes, the fourth was All American with 767 million minutes, and Criminal Minds reached fifth place with 679 million minutes.These figures show that 36% of the minutes given to Netflix's top five series were licensed content, with 11% going to Criminal Minds -- now no longer on the platform.
As a result, Netflix Originals haven't been enough to satisfy subscribers through the losses of licensed content. A recent study showed that Netflix placed fourth in overall consumer satisfaction in 2022, falling from 90% to 80% between 2021 and 2022. Its biggest competitors, HBO Max and Disney+, scored 88% and higher in consumer satisfaction, with neither decreasing over the last year.
While Netflix continues to sink millions of dollars into licensed content, such as spending over $500 million for exclusive rights to stream Seinfeld in September 2019, it just isn't enough. The Seinfeld deal cost more than NBCUniversal or Warner Media paid for The Office and Friends, and yet, the show hasn't appeared in the platform's top ten most-watched list in any week of 2022.
Surviving the competition
Netflix still has licensing deals with several distributors such as WarnerMedia and Universal, but as their own streaming platforms grow, those deals are likely to end. Over the next couple of years, it will be crucial for investors to keep an eye on the performance of Netflix Originals. As licensing titles continue to diminish, originals will be the future. If the company can create more hit series such as Stranger Things and Squid Game, the future will be a bit brighter for Netflix. Stranger Things' creators already have plans for a spin-off series, and that's a positive move for the platform.
Now that the latest season of Stranger Things has ended, the company must prove that its originals can remain the most-watched content even without a boost from releasing a new season of a proven hit show.