Image: Suits, USA Network
In August of 2022, original movies and TV series accounted for more than 50% of Netflix’s US library for the first time in company history. In July 2023, that number had risen to 55%. On the surface, such a trend suggests that Netflix originals are a consumer’s dominant choice on the platform and the company’s ballooning content budget over the last decade had finally justified itself. But dig a little bit deeper and few other storylines begin to emerge.
In reality, Netflix foresaw the coming streaming wars way back in the late 2010s. The company began heavily investing in originals to properly prepare for a future in which major studios such as Disney, Warner Bros., Paramount and NBCUniversal would hoard their libraries for their own steaming platforms. The launch of Apple TV+ and Disney+ in November 2019 marked that turning point when licensing opportunities began to dry up. Thus, the sea of originals that followed in the ensuing years.
Yet with Wall Street abruptly changing its mind on the streaming business model and volatile share prices becoming even more susceptible to financial scrutiny, we are in the midst of a strategic reversal. After years of in-house consolidation, the licensing market is red hot once more and Netflix is again the big beneficiary.
From January 2023-January 2024, Paramount, Warner Bros. Discovery and Comcast (NBCU) have seen notable increases in the volume of programming supply each is licensing to Netflix, according to Parrot Analytics. While Disney has not re-opened the flood gates to the same degree, it has struck strategic licensing agreements involving high profile shows such as LOST, Archer, This Is Us, How I Met Your Mother and others.
On the TV side, the re-opening of the licensing market has led to a steady decline of audience demand for Netflix originals over the last four quarters and an increase for external programming. Generally speaking, licensing deals cost significantly less than original development. Audiences also tend to be more familiar with licensed content such as Young Sheldon and NCIS versus a new original concept that requires a heavier marketing push.
Given that plus Netflix’s scale, it’s arguably easier for the platform to reinvigorate mass interest in something like Suits as opposed to unearthing the next Stranger Things. The first season of a new show only stands a 55% chance of getting renewed if it tops out at 12x more in demand than the average US series in its first 60 days of availability. That’s an uphill battle in a crowded Hollywood marketplace. No wonder licensing pre-existing hits has always been popular.
On the film side, the balance of power leans far more definitively in one direction.
Netflix has expensive exclusive pay one US licensing deals for Sony’s theatrical films and Universal’s animated theatrical movies (DreamWorks Animation, Illumination). The company has also struck more bespoke film licensing deals with Warner Bros., Lionsgate and other studios. These have proven to be crucial as the lack of wide release theatrical product from Netflix has put a definitive ceiling on the cultural footprint its original movies leave.
From Jan. 1, 2020-July 6, 2024, not a single Netflix original movie ranks among the 50 most in-demand films worldwide. For a studio that has routinely spent nine figures on cinematic product, that is a problem.
Since Jan. 1, 2023, the 10 most in-demand films on Netflix are all licensed movies from other studios. In fact, demand share for original Netflix movies in the US has declined in each of the last two quarters. The supply of Netflix original movies now outstrips demand, implying that investment can here be pulled back (hence the new Dan Lin era of efficiency). Licensed movies account for 75% of the platform’s total movie catalog in the US.
There’s a reason why licensed TV shows and films generated a healthy 45% of all viewership in Netflix’s 2023 first half engagement report. This is not a knock against the market-leading platform. On the contrary, it’s a highlight of how the company is turning one of its weaknesses into a more cost-effective strength. Netflix has the lowest average title demand for originals out of the eight major streamers, yet still survived when it was forced to rely far more on home grown programming than ever before. Now that re-selling content to third-party buyers is back in vogue, Netflix is thriving once more.
Of course, should some of these rival streamers reach consistent profitability in the near future, executives may once again decide to shut off the programming pipeline that directly aids a competitor. That would leave the market streamer vulnerable once more. But that’s a column for another day. For now, Netflix’s pole position is even more fortified as it feasts on the hits of others while still delivering a steady stream of its own.
