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How Netflix Has Changed The Entertainment Industry

Netflix has recently been ramping up its investment in creating its own original content. The company announced a $6 billion budget for 2019.

And while this is a significant increase from its $2 billion budget in 2018, it pales in comparison to its $8 billion budget for 2018.

But as the number of users continues to grow, so does the potential value of content.

Netflix intends to release 80 original series in 2019, which means each series could have well over 1,000 hours of original content in total.

And while this could be impressive in the past, it also poses a number of challenges, including:

Consistent quality of content

Watching Netflix

If Netflix releases too many shows at the same time, the initial launch will bring in high ratings and subscribers, and then the content will age out of the market as older viewers either get tired of the shows or turn to competing products like Amazon Prime Video, Hulu or HBO.

The second challenge is much more concerning in today's increasingly fragmented media landscape.

In order to grow its subscriber base, Netflix must entice customers to leave their current streaming services. But where many companies simply port their current catalogue over, Netflix has had to invest in original content, while giving audiences something entirely new to watch.

As such, Netflix has an exciting challenge on its hands: not just produce original content for its core markets (U.S. and Canada) but also a wide range of genres that appeal to a global audience.

Netflix has been doing an excellent job of bridging this gap with some recent successes

Covid-19

Season 2 of The Innocents was a surprise hit, for example, while self-proclaimed "bachelor-bots" made waves with Bachelor in Paradise.

But given that the company's mission is to create quality original content, it's a virtual certainty that Netflix will face growing competition.

YouTube Red (former YouTube Red Originals) is the newest entrant in the original content business and its biggest show is YouTube Red Originals' Bloodline, which is a version of the original drama from Starz.

It's already made waves in the U.S., but has since been renamed YouTube Premium.

Meanwhile, Amazon has already poached top Hollywood talent like M. Night Shyamalan, Rian Johnson and Woody Allen. In fact, Amazon Studios has so much original content on its slate, it's difficult to know where to begin.

But it's evident that it intends to take a very different path than Netflix.

Whereas Netflix is betting its entire business on original content, Amazon is attempting to unseat Netflix in the streaming industry by offering what it claims is better video quality than Netflix's products, better customer service than Netflix's customer service, and a unique proposition.

It's also worth noting that, in order to invest in its own content, Netflix has to pay the owners of its content — the creators, writers and directors of original content.

And while it currently doesn't own many of the most popular original shows on Netflix, such as House of Cards or Orange Is the New Black, it has made some interesting moves that could indicate a future push into original content.

A partnership with Marvel Studios, for example, could give Netflix access to some of the world's most popular superheroes.

In another agreement, it has licensed series from Disney's ABC network that had previously aired on Netflix.

Despite the investment in new content, Netflix still has a fairly strong advertising business.

According to eMarketer, as of last year, almost 30% of U.S. consumers who used the internet purchased an ad-supported video service, such as Netflix.

And as more people opt to pay for a subscription video-streaming service instead of buying individual media products, that share is only going to grow.

Netflix's investment in original content may have doomed it to fail in the eyes of Wall Street, but there's no question that its overall strategy is a sound one.

Canada: All aboard

black and white box on gray marble table

Netflix has yet to enter the Canadian market, but the country represents an interesting opportunity for the company.

Canada has almost 1.3 million more internet users than the U.S. and Netflix claims a third of its U.S. subscribers are Canadian.

But the real opportunity for Netflix lies in the very different ways that Canadian and American users access the internet.

In the U.S., U.S.-based Netflix subscribers simply pay for a monthly subscription for their service.

In Canada, however, Canadians are required to pay a monthly fee for a high-speed internet package that includes a combination of phone and internet lines.

The big difference is that, while Americans only have to pay one fee every month, Canadians must pay a separate fee for each type of connection they have.

Netflix, therefore, has a whole separate marketing and customer service operation to work on in Canada, which should help make sure that subscribers there remain happy.

For all intents and purposes, Netflix already operates as an internet service provider in Canada, as it helps distribute data from service providers such as Rogers Communications Inc. and Telus Corp.

Netflix also has a deal with Bell Canada to distribute its content in Canada.

I personally doubt that Netflix would ever make its way into Canada — it already faces a $76-million fine from the country's telecom regulator for violating rules that dictate the behaviour of third-party distributors.

However, Canadian investors should keep an eye on the company.

With its large population and high adoption rate for streaming services, the country offers plenty of opportunity for growth.

 

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