Netflix Coming Into Focus

25 Apr, 2013

About six months ago, I wrote a column titled “Netflix Needs Some Focus.” The column asked what Netflix wants to be when it grows up: a content distributor or content creator. I really don’t think it can do both equally well, and based on recent developments, neither does Netflix management.

Every company needs a laser focus on its vision and market, and perhaps Netflix is solidifying its own. The company is concentrating on building its content creation business, funding original productions such as “Lilyhammer,” “House of Cards” and “Hemlock Grove.” And they know what their customers like. Netflix knows what you are watching, when and how. It’s how they determine what content to greenlight and license.

In the old days, the TV was on, and it was mostly somewhat educated guesswork as to what anyone was actually watching. Now, a streaming company can know exactly what you are watching. And they know the exact value of each old movie they license. That’s why Netflix is indicating it may be more choosey as to which old movies and TV shows it licenses and will no longer buy content in bulk. The company is letting its Viacom deal expire, signaling the change in direction.

“As we continue to focus on exclusive and curated content, our willingness to pay for non-exclusive, bulk content deals declines,” reads the April 22 letter to shareholders from Netflix CEO Reed Hastings and CFO David Wells. The letter was released just before Netflix announced boffo earnings, sending the stock into the stratosphere.

That must send shivers down the backs of studio executives, who saw dollar signs when they looked at Netflix and its competitors and who hoped to get bulk catalog license payments from them.

In the end, Netflix seems to have come to the realization that its status as “first mover” can only go so far in the bulk streaming business. But the quest to be the next streaming AMC or HBO is a more profitable goal. The key is exclusive content, especially original content.