Netflix (NASDAQ:NFLX) has been a leader in helping consumers cut the cable cord. Its video streaming content gives users an option other than paying an expensive cable bill for many channels they might not watch, at a monthly price generally much higher than Netflix's.
Yet one major reason why many consumers can't completely abandon cable is that Netflix doesn't offer news, sports, and other live or daily content. Why is that the case?
No news, no sports
Netflix offers unlimited commercial-free content for one low monthly price. To do so, the company must limit is own expenses. One major cost is licensing fees for the third-party content it shows. These licensing agreements are one reason Netflix has been relatively slow to expand further internationally, and also why the company is focusing so much effort on producing original content.
There are a number of reasons for Netflix's relatively restricted video offerings. It's not just that it would be too hard to get the licensing sorted out for more content options, or to get the technology in place for streaming live or nearly live content.
The company won't offer news, sports, user-generated content, or porn for that matter, because these options are outside its focus. For those offerings, Netflix knows that linear TV serves customers well. By trying to focus on too many options, Netflix wouldn't be able to serve its key audience as well as it does. Instead, Netflix emphasizes its core competency of being an inexpensive provider of movies and TV series.
In its long-term vision document, the company states that:
We don't and can't compete on breadth of entertainment with Comcast, Sky, Amazon, Apple, Microsoft, Sony, or Google. For us to be hugely successful we have to be a focused passion brand. Starbucks, not 7-Eleven. Southwest, not United. HBO, not Dish.
Limited by scope, but expansive in its content
So while Netflix has a limited streaming offering restricted to movies and TV series, it is working hard to remain the best option for its focused segment. Netflix is spending billions of dollars on creating original content.
Netflix original content was first seen as a potential disruptor to the big media companies with its House of Cards original series. Then, Orange Is the New Black also did extremely well. Netflix has other hit series under its original content belt, and is preparing to offer much more material to subscribers in the near future.
"With each original, we learn more about what our members want, about how to produce and promote effectively, and about the positive impact of originals on our brand," according to Ted Sarandos, Netflix chief content officer.
In 2015, Netflix plans to release 320 hours of original content, which is three times as much as in 2013. Of course, Amazon.com and other video streaming companies are working to catch up to Netflix with their own shows. Still, Netflix is by far the streaming video leader when it comes to original content, with 31 Emmy nominations in 2014.
The focused model works
Last summer, Netflix raised its prices for regular U.S. consumers. While a drop in subscriber growth in the second half of the year was originally attributed to the price increase, management during its latest earnings call attributed the development to other factors, the biggest one being that Netflix is already such a huge player in the U.S. market with 40 million domestic subscribers. Now that it's saturating the market, Netflix will try to add higher value in other ways (such as with better technology and more original content).
Therefore, it appears Netflix has strong pricing power, despite only offering movies and TV rather than becoming a stand-alone service for consumers who might also want it to offer news, sports, and other content. Long term, it appears Netflix made the right call in remaining so focused.
Bradley Seth McNew owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, Google (A shares), Google (C shares), Netflix, Sky, and Starbucks. The Motley Fool owns shares of Amazon.com, Apple, Google (A shares), Google (C shares), Netflix, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.