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Is Netflix’s Spending on Content Paying Off?

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Netflix’s subscriber base rises again

Despite higher subscription rates and stiff competition, Netflix (NFLX) posted stellar 1Q18 subscriber numbers. Netflix’s total subscriber base increased ~6.3% to 125.0 million, with subscriber additions of ~7.4 million in 1Q18. The company’s subscriber additions exceeded Wall Street expectations of 6.5 million and management’s guidance of ~6.4 million.

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Netflix is spending heavily on content

The growth in its subscriber base comes from Netflix’s huge investment in original content to attract more subscribers. In 2017, Netflix spent $6.0 billion to launch about 30 new original shows. The company is spending significantly more on content than its rivals. In contrast, Amazon (AMZN) spent $4.5 billion on original and acquired content, and Hulu invested $2.5 billion on content in 2017.

Netflix expects global content spending of ~$7.5 billion–$8.0 billion on TV shows and movies in 2018, which is in line with its previous expectations.

Original shows and programming

According to industry reports, Netflix subscribers watched nearly 350.0 million hours of TV shows and movies on January 7, 2018. On an average, customers streamed 140.0 million hours of programming daily in February. According to Cowen and Company analysts, in 1Q18, Netflix boosted original programming by 85.0% in 1Q17 to a record 483 hours.

During the first quarter of 2018, Netflix premiered several original series, including Altered Carbon and O Mecanismo. Netflix also gained popularity on the returning seasons of Santa Clarita Diet, Marvel’s Jessica Jones, Grace and Frankie, and A Series of Unfortunate Events. On the unscripted front, Netflix cited shows such as Queer Eye and Nailed It, which engaged viewers around the world.

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