Netflix’s Secret to Offering Popular Content
Better view of viewing habits
Netflix’s (NFLX) rapid growth in user numbers and revenues could be a direct result of its ability to pick up shows that resonate with its customers. What’s the company’s secret? It may have something to do with the data the company collects from its users, according to analyst Rob Sanderson of MKM Partners.
Sanderson recently reiterated a “buy” rating on Netflix stock and gave it a price target of $175. Sanderson noted that the company has an information advantage over its rivals when it comes to knowing what viewers want.
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Netflix’s platform has more than 93 million members, giving the company a detailed understanding of consumers’ viewing behavior and enabling it to tailor its catalog of shows to their preferences.
Content arms race
Netflix and rival Amazon (AMZN) spent millions of dollars (UUP) at this year’s Sundance Film Festival in the US (SPY). The two companies acquired films that they believe would help them draw more viewers to their streaming services, which could increase their revenues.
Netflix has lined up $6 billion to spend on content acquisition in 2017. This figure is up $1 billion from its 2016 budget as it works to push against competitors in China (FXI) (MCHI) and other overseas markets.
Sanderson estimates that Netflix’s annual content costs could rise from $6 billion in 2017 to $11 billion in 2021, as depicted in the chart above. Amazon is spending a generally equal amount on content acquisition, but it prefers not to reveal its figures.
Growing by leaps and bounds
Netflix (NFLX) grew its user base to 93.8 million at the end of 2016, up sharply from 33.3 million in 2011. Its revenues rose from $3.6 billion in 2012 to $8.8 billion in 2016.