Ted Sarandos, Netflix's (NASDAQ:NFLX) chief content officer, recently told analysts that the streaming-video service plans to double down on original series in 2016. The company currently has plans to produce 31 scripted series in 2016. That puts it right in line with Time Warner's (NYSE:TWX.DL) HBO and its plans for original programming in 2016.
But how appealing is Netflix's original programming really? A recent survey from RBC Capital Markets found that 51% of Netflix subscribers weren't influenced by Netflix's original series, but rather its licensed content from movie and television studios. Just 27% of respondents were influenced "a good amount" by Netflix originals. And while Netflix has plenty of outside content licenses in place, it would rather spend its money on original programming that it can exercise more control over.
One of the biggest factors that attracts subscribers to Netflix is the breadth of its streaming library. Nearly three times as many survey respondents cited the variety of programming as a reason for subscribing compared with original content in a Cowen and Company survey at the beginning of the year.
Sarandos certainly seems to understand this. The company has $5 billion budgeted for total content -- a 50% increase from this year's estimated budget. So not only is Netflix spending heavily to expand its arsenal of original content, but it's also keeping up with licensing broadcast television and movies to attract new subscribers.
While Netflix's originals don't seem to do much to attract new subscribers, they certainly do a good job keeping them around. Another survey from RBC Capital Markets found that Netflix originals accounted for at least half of the viewing time of 38% of Netflix subscribers. Additionally, more than 75% of subscribers watch at least some of Netflix's original content.
Those numbers are also in line with the rise in estimated watch time per subscriber as subscribers supplement their existing Netflix viewing with original series instead of replacing it.
Those numbers are sure to rise as Netflix continues to pump out more original series, comedy specials, and movies. Not only is Netflix doubling the number of television series it's producing in 2016, but it's also starting to release movies, including a set of four films starring Adam Sandler, the sequel to Crouching Tiger Hidden Dragon, and War Machine starring Brad Pitt.
Networks fight back
Time Warner CEO Jeff Bewkes told investors during the company's third-quarter earnings call that he would rethink the windowing currently used to license content to SVOD services such as Netflix. Longer windows, the reasoning goes, would encourage more live viewers or at least improve home video sales. The only problem is that networks are reliant on Netflix's licensing deals for additional revenue, and it's a risk to forgo that revenue in exchange for just the possibility of better ratings.
If Netflix cut back on licensing content or networks cut back on their end, Netflix could see its subscriber growth drop off. As noted, original series aren't a huge selling point for many consumers making a decision on whether to subscribe to Netflix. Nonetheless, Netflix may be able to retain its existing subscribers fairly well.
As such, it makes sense for Netflix to license less content over time as it saturates the market. With more than half of Americans watching Netflix, it's getting pretty close to that level domestically, but it's still in the early growth stages in most other markets.