Netflix talks content bidding war, international rights

In its Q1 earnings call, Netflix execs shed light on an upcoming price increase and growing competition in the content marketplace.
April 22, 2014

Netflix will raise prices for subscribers this year in an effort to increase revenues and continue its commitment to secure rights to new and original content.

During an earnings call on Monday, execs also suggested the bidding war for high-end productions is heating up — good news for producers who stand to benefit from an increasingly competitive marketplace.

“You either want to make a deal at the price that you want, or one that you’d be happy to see your competitor pay.”

“We’re committing to larger budget shows, not that the same show is more expensive to make year-on-year,” said Ted Sarandos, the company’s chief content officer. “Think about it like a sports team where the bidding gets quite high on a couple of key pieces of talent, but the overall salaries, they are kind of in check,” he said.

With plans to raise subscription prices by $1 to $2 per month later this year for new members, some of the money will be invested back into original content, which will remain at less than 10% of overall content spending.

The company ended Q1 with more than 48 million subscribers internationally, a growth of 4 million since last quarter. Netflix also topped $1 billion in quarterly streaming revenue.

Meanwhile, expanding into international markets is having an impact on the way the company negotiates rights around shows. For example, there is an effort to license North America together; negotiate “very long-term” licensing deals; and coordinate massive marketing relationships with studios and networks that produce the shows, explained Sarandos.

“What we want to do is be able to have much more control over the way the content is exploited on and off of Netflix,” Sarandos said.

“Being a single buyer for multiple territories puts us in a unique class of buying,” he said. “So I think we could bring a lot of efficiencies as a global buyer. Just today, the studios and networks aren’t set up to be global sellers yet.”

But asked if they would launch in new markets like France and Germany if they didn’t have the international rights for shows like Orange Is The New Black (pictured), Netlix’s most popular series, Sarandos said “sure we would, because we are going to have a lot of new original shows that will launch between now and then. And we will also have shows that we are premiering in France and Germany and other markets around Europe that we won’t necessarily have in the United States.”

Netflix brass was also asked about what they can learn from the success of their main competitor HBO’s True Detective — “a show that Netflix was bidding on and actually wanted and thought would work well for Netflix,” according to Rich Greenfield, an analyst at BTIG Research, who co-led the interview streamed on YouTube.

If a show has passed through Netflix doors, it’s because the deal didn’t make sense relative to what they believe the audience would be, not because they couldn’t afford it, Sarandos responded.

“You either want to make a deal at the price that you want, or one that you’d be happy to see your competitor pay,” Sarandos said.

By-the numbers takeaway from Netflix’s Q1:

  • U.S. subscriber base grew by 2.25 million net members to 35.7 million members
  • International membership grew by 1.75 million, totaling 12.7 million members
  • International revenues currently amount to 25% of Netflix’s total streaming revenue. Netflix says the international segment is “on path to achieve profitability this year.”
  • Netflix expects to near the 50-million subscriber mark in Q2 (49.81M)
  • The company will be investing more in marketing its exclusive content, including a global push for the season 2 launch of OITNB on June 6, and spending less on direct response advertising such as banner ads touting free trial

Some of this article is based on a call transcript from investor relations website Seeking Alpha

About The Author
Melita Kuburas is the editor of StreamDaily. You can reach her directly at press[at]streamdaily.tv or on Twitter @melitakuburas

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