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Is Netflix’s $1 Billion Marketing Budget Justified?

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Doubling marketing spending

Netflix (NFLX) is going to spend more than $1.0 billion this year to market itself. What does that mean and where does it fit?

Netflix’s spending $1.0 billion on marketing activities in 2017 would mean its more than doubling its marketing budget from where it was in 2013. The company funneled $470 million into marketing activities in 2013, and its budget rose steadily over the years to reach nearly $1.0 billion in 2016.

The $1.0 billion that Netflix intends to spend on marketing this year is in addition to the $6.0 billion it plans to spend on content acquisition.

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Promoting content

Netflix is spending quite a bit on marketing to promote its original shows, which are instrumental in driving its subscriber gains. The company is getting closer to reaching 100 million subscribers. It finished 1Q17 with 98.8 million customers, with 94.4 million being paid subscribers. Netflix had 77.7 million paid subscribers in 1Q16, as we can see in the chart above.

In Netflix’s case, its growing original catalog is helping it to draw more subscribers. Before that happens, however, it must drive awareness of its original programming, which explains why it’s spending more on marketing as it produces more originals.

Defending against competition

As new rival services are launched and competitors enhance their offerings, the need has arisen for Netflix to step up its marketing campaign to defend against potential subscriber losses or a growth slowdown. 

For example, Netflix needs to push back against AT&T’s (T) DIRECTV Now, Alphabet’s (GOOGL) YouTube, Amazon’s (AMZN) Prime Video, and competing video services by Facebook (FB) and Snap (SNAP).

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