In the past couple of days, I have fielded questions from international journalists about Netflix’s reaching a milestone of 100 million subscribers, and its plans to spend $6 billion on original shows and movies this year. Can the company sustain this level of spending, and has it proved it can succeed in international markets?
Yep and yep.
Six billion seems like a huge financial risk (on forecast revenue of $11 billion) but it is clear from Netflix’s second-quarter results that content is strongly driving subscriber additions. Until fairly recently, most consumers signed up at the holidays, after receiving a Netflix-enabled device or a gift card. Results for Netflix’s Q2 — typically its weakest quarter — were astonishingly strong, indicating that people are signing up all year-round when they hear about shows they want to see.
That, and Netflix’s last bet-the-ranch move — spending more than $1 billion (on a lot less revenue) on marketing between 2005 and 2007 to acquire subscribers as fast as possible and drive off Blockbuster and Amazon — argue that this strategy can work to solidify the company’s position in international markets.
During the Blockbuster battle, consumers evangelized Netflix’s overnight delivery, movie availability and personalized user interface, and this word-of-mouth drove a lot of growth. Today, content is what subscribers talk about, and it’s clear that Netflix needs to give them something to talk about.