Jerry Seinfeld's classic "show about nothing" still has a base of loyal fans quoting its quirky scenes even 17 years after the show stopped airing. Yet regardless of Seinfeld's apparent fan base, Netflix (NASDAQ:NFLX) turned down buying streaming rights to the series earlier in 2015.
Instead, Hulu, the streaming service co-owned by The Walt Disney Company (NYSE:DIS), Twenty-First Century Fox (NASDAQ:FOX), and Comcast Corporation (NASDAQ:CMCSA) announced that it bought streaming rights to Seinfeld. The price tag has been estimated at up to $180 million, or about $1 million per episode (as Hulu is private, exact financials were not disclosed). Now that Hulu got the show, did Netflix miss out?
What Netflix is spending money on instead
Netflix was reportedly involved in the early stages of bidding on Seinfeld, but turned down buying the rights, or was outbid by Hulu. There are a few reasons why Netflix most likely passed on the show -- not least of all, the hefty price tag.
It's not that Netflix couldn't afford Seinfeld, as the company said that it would spend more than $3 billion on content in 2015. And Netflix paid a hefty price to acquire the streaming rights for the series Friends last year: $500,000 per episode (about $118 million for 236 episodes). But while Netflix can pay these prices for old shows, it has its sights and financial focus mainly set on the future with its own original content.
Netflix management is making a bigger push than ever for original content, planning to release about 320 hours of original content in 2015. That's 3 times the amount released in 2014. Not only is Netflix growing the amount of original programming, it is also learning from each new show to produce more and more hits that the company hopes will continue to drive revenue and earnings for years to come.
"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." -- Ted Sarandos, Netflix chief content officer in the 2014 year end earnings call
Hits like House of Cards and Orange Is the New Black -- each on their third season -- as well as newer shows like Unbreakable Kimmy Schmidt and Marco Polo prove that Netflix does have the potential to consistently produce content that's competitive with major networks' content, and often at lower costs. Sarandos also stated, "Our originals cost us less money, relative to our viewing metrics, than most of our licensed content, much of which is well known and created by the top studios."
Does Hulu's growth threaten Netflix?
Hulu does seem to be aggressively growing its streaming library, as this expensive Seinfeld purchase shows. Earlier this year, Hulu made another huge acquisition of all 14 seasons of CSI. The financials were not disclosed, but with over 300 episodes, it was probably a significant cost.
Netflix and Hulu services are similarly priced, and each has similar viewing options and technology. However, Netflix's content library is far larger than Hulu's by most estimates. Though neither service provides specifics on the size of their libraries anymore, according to Diffen.com, Netflix's library is significantly larger, especially for movies.
While Hulu does offer shows that Netflix does not, such as Seinfeld, the breadth of Netflix's library would still be a reason for most consumers to either have both services (doable, since both are inexpensive compared to most cable subscription options), or just Netflix.
More important for the long term, Netlifx's push toward original content could be the biggest reason that it will continue to outpace Hulu, which is far behind in terms of originals to date. Therefore, even with Hulu's recent content expansion, it doesn't seem to be much of a threat to Netflix -- and it looks like a smart move by Netflix to let Seinfeld go.
Bradley Seth McNew owns shares of Apple and Walt Disney. The Motley Fool recommends Apple, Netflix, and Walt Disney. The Motley Fool owns shares of Apple, Netflix, and Walt Disney. 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.