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Why Netflix Continues to Focus on Original Programming

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Netflix intends to increase its spending on original programming

Netflix (NFLX) intends to launch 600 hours of original programming in 2016. It plans to spend $5 billion on original programming in 2016 and over $6 billion in 2017 on a cash basis. Currently, 10% of Netflix’s content spending is on original content. The company would like to increase this amount to 50%. Netflix believes that original content will continue to strengthen its brand and drive up viewing hours.

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Netflix also intends to spend 5% of its content spending on original movies. Although movie production is expensive, Netflix believes it’s worth it to spend $1 billion on producing original movies rather than the same amount on purchasing SVOD (subscription video on demand) rights from movie studios. Netflix believes that, by producing original movies and releasing them simultaneously in theaters and on Netflix, it’s offering subscribers the latest movies with quality content.

In fiscal 1Q16, Netflix released a new show or movie almost every week through the quarter.

Netflix is also exploring different genres of programming

In 2016, Netflix intends to produce around 30 original series, eight original movies, 35 original series for kids, 12 documentaries, and nine stand-up comedy specials.

In the second quarter of 2016, Netflix will also launch its talk show for the first time, Chelsea , starring Chelsea Handler. The company will also boost the popularity of its kids’ programming with nine new seasons of kids’ original series, including Kong: King of The Apes and Voltron.

According to a December 2015 Sandvine “Global Internet Phenomena” report, Netflix had a 37.1% share of the peak downstream Internet traffic in North America.

As the chart above shows, in contrast, Alphabet’s (GOOG) YouTube had a share of 17.9% while Amazon’s (AMZN) Prime Instant Video service and Hulu had shares of 3.1% and 2.6%, respectively.

Netflix’s rise in original programming is likely to further boost its popularity among viewers.

Netflix makes up 0.26% of the SPDR S&P 500 ETF (SPY), which has 3.9% exposure to the computers sector. SPY also holds 0.84% of The Walt Disney Company (DIS).

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