Netflix’s biggest asset is of course it’s content. It has the best shows, movies and documentaries anywhere all in once place.
Reed Hastings has made a concerted effort to capture all of the content the company can and retain the exclusive rights to publishing it to the growing number of Netflix users.
The growth in the content budget is going toward new original productions.
While Netflix has a goal for 50% of its content to be originals, original productions and co-productions currently account for just 8% of its content hours for the U.S. service.
That number will continue to grow over time as more media companies retain their own content and Netflix produces more originals, but originals are still a long way away from accounting for the majority of content (or even watch time) on Netflix. The growth in new originals could continue to accelerate into 2020 as Netflix loses the rights to some of its top licensed content.
Some of Netflix’s most valuable content is licensed from other media companies. For example, the streaming video company agreed to pay $100 million to AT&T’s (NYSE: T) WarnerMedia for the rights to stream Friends in 2019.
What’s more between Disney (NYSE: DIS), (NASDAQ: FOXA), (NASDAQ: CMCSA) and the aforementioned AT&T’s (NYSE: T)…
The four media companies account for about 20% of content hours for Netflix’s U.S. service, according to data from Ampere Analysis reported by Recode. That content could generate more than 20% of watchtime on Netflix, as evidenced by Netflix’s willingness to pay $100 million for a 15-year-old show.
So, Netflix may have a considerable challenge on its hands if it loses content from those media companies.