Netflix as a standalone streaming video service might not be enough to sustain its trajectory as a fast-growing, publicly traded company.
Two of its newest competitors, Disney and Apple, have other longstanding and profitable lines of business that dwarf whatever their new streaming aspirations may be. The common narrative is that a company like Disney is trying to be more like Netflix, but in reality, Netflix should be aiming to become more like Disney.
During its Q2 earnings call, Netflix’s chief content officer, Ted Sarandos, spoke openly about doubling down on original content. “We’re getting our members much more attuned to the expectation that we’re going to create their next favorite show,” he said. “Not that we’re going to be the place where you can get anything every time.”
If one takes this at face value, it would seem that we are at the midpoint of a transition from what was once a service valued for its aggregation of licensed content to one that is comprised almost entirely of first-party originals. But getting there might mean that Netflix loses a few members—and the confidence of its investors—along the way.
Netflix should presumably feel comfortable with this strategy after leveraging data about their users’ viewing habits. If Netflix knows that a substantial part of its audience watches all or almost all original content, it can be confident in pivoting further towards originals.
If it has seen that members who are skipping The Office reruns in order to watch The Politician and Queer Eye are the highest-paying, lowest-churning, or cheapest to acquire, then it would make sense to cater to people like them: a tighter, but more valuable audience.
Besides having both launched this month, Disney Plus and Apple TV Plus have something else in common: They have both premiered with exclusively original programming.
But is all original content equal?
Disney’s new offering is a greatest hits of everything Disney has ever done and presumably ever will do—it’s almost entirely wholly owned Disney IP.
Apple TV Plus is touting its shows as “Apple Originals,” but not all are truly original. Yes, some, such as The Morning Show, are entirely new concepts, but others are new productions featuring highly familiar characters, both real and fictional, such as Oprah and Snoopy. The difference between Apple and Disney “originals” highlights the nuance of the term.
Netflix’s strategy seems to more closely resemble Apple’s. Some of its original programming is fully owned intellectual property (think: Stranger Things or GLOW). These are more defensible, and as fandoms grow, Netflix is the sole beneficiary over time. Those sorts of brands can be leveraged again and again, amortizing the costs by using the same assets multiple times. It provides a consumer with an experience they cannot get anywhere else. However, a lot of “original” content on Netflix is, like some on Apple TV Plus, more about new spins on existing brands (think: Dave Chappelle specials or Fuller House). These are highly popular but have little defensibility. A Dave Chappelle fan is not necessarily a Netflix fan.
Wholly owned content is the gift that keeps on giving. It is what has allowed Disney to grow well beyond TV and films. Over almost a hundred years, Disney has built a massive company out of creating, acquiring, and nurturing intellectual property—brands, stories, and characters—that have often proven to have multigenerational appeal. Disney’s revenues exceeded $20 billion last quarter, about four times that of Netflix, and it hadn’t even launched its streaming service yet. And Disney made about the same amount of revenue from theme parks and physical products as it did from TV and movies, most of which leveraged the same IP.
If Netflix is, in fact, looking to companies such as Disney for inspiration in moving not only from licensed to original content but to bona fide originals, it’s the right move as those will become the streaming leader’s most valuable assets over the long term.
And if a streaming service alone is not big enough to sustain its growth, perhaps we will start to see Netflix building other products on top of its homegrown brands. I would totally go to a Stranger Things theme park. Because it knows what I watch, Netflix already knows that too.
Paul Canetti is CEO of MAZ, a platform used by media companies for app development and content distribution, including Fast Company. He also teaches user experience and product management at Columbia Business School.