At 60% of revenue, Netflix’s annual content spend is now comparable to a premium channel group or platform, marking a re-focus of the company’s overall strategy, according to Ampere Analysis.
“With original content also central to success and a catalogue refinement underway, Netflix is repositioning as a premium channel play,” the UK research firm adds.
Netflix and Amazon therefore have very different business models, as Amazon has been positioning strategically as a platform content operation rather than a channel, the company says. “Amazon is further able to use its retail business to supplement its content investment strategy.”
According to Ampere Analysis, the Netflix content spend as a proportion of revenue puts it on the same level as companies like Sky, ITV and NBC. Over the last year Netflix has reduced the volume of content that is more than five years old in its U.S. catalogue by 43%, while increasing the proportion of original content.
“Original productions have become central to the SVOD platform’s content strategy, and this is where much of the money goes. Netflix is targeting a 50/50 split between acquired content and original productions. Our forecasts indicate that Netflix will pass the 50% mark for original content spend by 2021.”
Netflix’s annual content spend will rise to nearly $6bn in 2017. Currently it is $4.7bn (2016). That is nearly twice Amazon’s $2.7bn annual SVOD content bill but Ampere Analysis says the proportion of expenditure against video service revenue at Amazon is similar to the figures at Netflix at the same point in its video development.
Daniel Gadher, Analyst at Ampere Analysis says: “Netflix’s growth has relied heavily on geographic expansion to date, but with its global launch that road has now run out. Increasingly, Netflix is re-engineering as a premium channel play in a strategy that differs considerably from that of Amazon. This duality of approaches will see the two operations increasingly carve out parallel but separate niches.”
John Moulding is editor-in-chief of Videonet.
