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Why Netflix Plans to Spend $1 Billion on Marketing in 2016

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Nov. 20 2020, Updated 2:30 p.m. ET

Netflix’s spending breakdown

Netflix (NFLX) is a global Internet TV network offering movies and TV series commercial-free, with unlimited viewing on any Internet-connected screen for an affordable, no-commitment monthly fee. It does not offer pay-per-view or free ad-supported content but has instead positioned itself as a movie and TV series entertainment network.

Netflix’s main focus is on the freedom of on-demand and the fun of binge viewing. In order to deliver a worthwhile experience to customers, Netflix expects to spend over $700 million on technology and development in 2016. It also plans to spend approximately $1 billion on marketing in 2016, as it looks to expand globally in the next few months.

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Online streaming competition

The online video streaming market in the US is a crowded segment. In addition to Netflix (NFLX), pay-TV providers like DISH Network’s (DISH) Sling TV and media firm Time Warner Cable’s (TWX) HBO are vying for potential customers in the online streaming segment.

On July 12, 2015, Comcast Corporation (CMCSA) announced its OTT (over-the-top) service, Stream. It’s priced at $15 per month. It will launch in Boston by November 2015. It will be launched all over the US by the end of 1Q16. According to reports, pay-TV providers like Comcast and Time Warner are rapidly losing customers to online video streaming companies. This is a phenomenon known as “cord-cutting.”

Video piracy remains a threat

Video piracy remains a major threat to the online entertainment space especially in developing countries like China and India. Global revenues in the music industry have been in decline over the past 15 years due to piracy and will impact revenues of firms in this space.

You can get diversified exposure to Netflix by investing in the SPDR S&P 500 ETF (SPY) and the PowerShares QQQ Trust Series 1 ETF (QQQ). These funds have 0.27% and 0.95%, respectively, of their holdings in the company’s stock.

Read the next part of this series for a look at Netflix’s rising international revenues.

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