IBC '16: Netflix Re-Engineers as a Premium Play to Drive Growth

Alarm bells were heard for perhaps the first time by Netflix stockholders in July when it reported a greater than expected slowdown in subscriptions. But Netflix is in the game for the long haul as it enters a new phase of strategies to build revenue, based on what it shared at IBC.

On the content side the SVOD service is overhauling its programme library to move from a longtail warehouse to a premium platform.

Speaking at the IBC conference session "The New Broadcasters: The Rise of Internet TV Networks," Netflix VP ubsiness development EMEA Christopher Whiteley said, "We have reduced our content library at the same time as the proportion of original content is much higher, so we are going head to head much less with competitors on content."

He also pressed home the point that the poster child for OTT disruption was now all about partnerships.

"We take a long-term view. We will go and see educate MVPDs (multichannel video programming distributors) and talk to them about the value we offer—which in a nutshell is around offering their viewers what they want."

He cited Comcast as a MVPD with whom Netflix had struggled to build a relationship. "Not too long ago we had disputes with them around net neutrality, yet later this year we launching on the Xfinity X1 set top box."

He added, "We partner with 40 MVPDs who see a value in Netflix as a long term partner. We want more partnerships in established markets. We work with partners on the smart TV side to improve the UI, we work with MPVD technical teams to ensure the service is the best it can be and with their marketing departments to maximise brand awareness and integrate with their campaigns. We want to make it easy to do business with Netflix."

In its first phase of growth Netflix relied heavily on geographic expansion, said Ampere Analysis research director Guy Bisson, but is now changing its content strategy to counter slowing subscriber take-up. Netflix added a below-forecast 160,000 new subs in the U.S. and 1.52 million around the world in its last financial quarter.

"That road has run out," said Bisson. "We don't see an opportunity around additional growth by launching in new territories for Netflix from 2017. What we are seeing now is a natural progression of a strategy that is genetically identical to any channel business."

Netflix has fixed future growth on becoming a premium channel and is spending 60% of its revenues on content.

In last six months Netflix has reduced its programming of content older than 5 years by 20%, at the same time its original productions are up 30%, according to Ampere Analysis. "Netflix is very much re-engineering as a premium channel play," said Bisson.

More figures: Netflix U.S. reduced the total number of TV shows on offer from 1,609 in January 2014 to 1,197 in March 2016, mainly shows two years old or more. Netflix UK cut its catalogue by 490 titles from December 2015 to June 2016, from 2,502 to 2,012. It has also reduced its libraries in France and Germany.