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Why Is Netflix against the Episode Stacking Concept?

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Netflix is against episode stacking

Netflix (NFLX) stated in its 2Q15 letter to shareholders that the company expects to spend ~$5 billion in 2016 on acquiring content. The company expects a large part of this content spend to be on original content.

Netflix has entered into a deal with The Walt Disney Company’s (DIS) ABC Studios to produce exclusive content for Netflix. You can get a diversified exposure to Disney by investing in the Consumer Discretionary Select Sector SPDR ETF (XLY), which holds 7.63% of the stock.

Netflix has always been selective about the deals it enters into with content providers. According to a June 16 report in the Wall Street Journal citing the recent MoffettNathanson conference, Netflix isn’t interested in non-exclusive deals with channel networks.

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Netflix expressed its disinterest in deals that devalue programming as networks retaining “stacking rights.” Through stacking rights, channels can distribute programming through pay-TV, video-on-demand services. The reason for Netflix’s disinterest in non-exclusive deals is because the company wants a majority of its content spend to be on original and exclusive programming.

According to a SunTrust Robinson Humphrey and SurveyMonkey report of 1,500 US respondents aged 13 years and above, more than half of streaming service users have used Netflix. As you can see in the above graph, about 30% have used Amazon (AMZN) Prime Instant Video, and only 11% have used Hulu Plus. Hulu is an over-the-top (or OTT), ad-supported streaming service jointly owned by Fox Entertainment Group, Disney, and NBC Universal (CMCSA).

Reason for popularity among users

The reason for Netflix’s popularity among consumers of online streaming is the company’s original content. For example, on June 11, Netflix members watched a record number of hours of the Season 3 opening of Orange Is the New Black, despite the NBA (National Basketball Association) finals on the same day. Currently, almost 90% of Netflix members are watching the company’s original content, which could indicate that the company is on the right track.

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