Welcome to the Netflix pivot.
Faced with mounting competition to its streaming dominance, rising costs for content and a stagnant domestic subscriber base, the streaming giant has begun fighting a two-front war, hunkering down at home and setting up a blitzkrieg overseas.
Netflix plans to add 130 seasons of local-language programming in 2020. With hits like La Casa de Papel (Spain) and Sintonia (Brazil) driving international subscriber growth, chief content officer Ted Sarandos said the company is expanding the number of countries in which it has local-language content to 30, from 17, having announced four international projects so far this month, including productions in Iceland and Mexico. Last month, the company revealed it would produce at least ten Korean original series.
The moves helped the company stem a slide that has sapped 21% of its value since July, with investors sending the stock surging 5% this morning after it released its third-quarter results yesterday. For the second quarter in a row, Netflix missed the mark on U.S. subscribers, adding only 500,000 new customers when it was expecting 800,000. Competition has driven up the cost of competitive content by 30% in the past year, Sarandos said during the earnings presentation, a figure that seemed to surprise even CEO Reed Hastings.
"Its U.S. user base has become so large that it can no longer expect to add a significant number of subscribers there," says Ross Benes, an analyst at eMarketer. "These past two quarters show that Netflix's user growth will have to come from international markets."
That has it moving to protect its home turf as competitors like Walt Disney, Apple and NBCUniversal begin building their own streaming services from the ground up. Unable to match Disney or Apple on price ($6.99 and $4.99, respectively), it is aiming to give viewers more bang for the buck. It hopes to drive up the value of its service with an influx of original films while cutting some of the new programming it has relied on to bring in subscribers.
Netflix has axed many of the acclaimed, niche series for which it had become known, like The OA, One Day at a Time and Tuca & Bertie to the ire of fans and showrunners alike. Even hits like Grace and Frankie, Bojack Horseman and GLOW were given their final seasons. It will also soon part ways with classic sitcoms, including The Office, which will go to NBCUniversal's Peacock service, and Friends, for which it paid $100 million this year but which it lost in a bidding war to WarnerMedia.
Those departures could have an outsized impact on Netflix's U.S. subscriber numbers. A Morning Consult poll earlier this year found that 30% of American customers between the ages of 18 and 29 would cancel their subscriptions if Netflix lost both The Office and Friends. The company paid up to keep Seinfeld, outbidding several competitors including Amazon, Viacom and Hulu (where it currently lives). The five-year deal was reported to exceed half a billion dollars.
It's also amplifying its domestic film strategy, which could be the way to justify its higher subscription price relative to Apple TV+, Disney+ and Hulu. While it is difficult to quantify how much a television show is worth to a customer, LightShed partner Richard Greenfield says, people are used to paying $10 to $15 for a movie ticket, and Netflix is starting to make movies as impressive as any traditional studio's.
The company has brought in top directors like Steven Soderbergh and Fernando Meirelles and reportedly spent as much as $200 million on Martin Scorcese's crime drama The Irishman, which will be released on the platform in November following a limited theatrical run. It is also betting on less prestigious properties, such as teen rom-com Tall Girl and thriller Secret Obsession, which the company reportsbrought in about 40 million viewers each. The streamer will also release a slew of holiday content, including a third Christmas Prince installment.
"There is basically a new move every single week," Greenfield says. "The price-value relationship of the Netflix subscription moves into a whole other category."
Although keeping its more than 60 million U.S. subscribers happy is key, Wall Street values the business by the number of eyeballs it brings in. The streamer knows it has more opportunity to do that in Mumbai than Minneapolis.
Netflix's effort in India has been one of its most ambitious yet: It introduced a mobile-only plan there in July that costs $2.80 per month. Although he did not provide specifics, chief product officer Greg Peters said the platform is off to a good start. "We're very, very happy with the mobile plan," he said on the investor call. "It's performing better than we tested."
Where the users are, the content follows. In September, Netflix inked a long-term deal with Indian director and television personality Karan Johar and announced that Priyanka Chopra Jonas would executive-produce and star in a film adaptation of the acclaimed Indian novel The White Tiger. To date, Netflix has announced 16 original series and 24 original films in India.