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Why Is Netflix Experimenting with Original Content Licensing?

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Netflix’s content licensing strategy

At the Goldman Sachs Communacopia Conference last month, Netflix (NFLX) was asked about where the company saw itself in the changing media environment where there are more bidders for content and more content producers.

Netflix said one of the reasons it has ventured into original content production is the declining cost of content production. The company also said that technological improvements have been a major factor in decreasing the cost of content production.

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Netflix pointed out that there are more content producers as well as a rising demand for content. It intends to take advantage of that trend. It stated in its fiscal 2Q16 earnings call that from a content licensing perspective, its original content provides an attractive content licensing opportunity. So although the company is “licensing first window for some titles in some countries, and second window for global, what we’re finding is when we launch in our new original series, there’s a huge appetite for them around the world.”

The company is also experimenting with licensing its content to linear television networks in international markets.

Peers are also licensing content

In July, Twenty-First Century Fox (FOXA) entered into a content licensing deal with Netflix (NFLX). According to the terms of the deal, Netflix will have exclusive streaming rights to FOXA’s FX channel series American Crime Story. The first season is The People v. O.J. Simpson: American Crime Story.

The FX channel is part of Twenty-First Century Fox’s Cable Networks Programming segment. In fiscal 2016, the segment had revenue of $15 billion and accounted for 55% of the company’s total revenue of $27.3 billion.

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