Show pageOld revisionsBacklinksBack to top This page is read only. You can view the source, but not change it. Ask your administrator if you think this is wrong. ====== Netflix Originals ====== Netflix Originals are films, series, documentaries, and specials exclusively branded and distributed on the [[Netflix]] streaming platform. This label, however, covers more than just content produced in-house. It represents a fundamental strategic shift from being a simple content //licensor// to a global content //powerhouse//. Initially, Netflix relied on licensing shows and movies from established studios. But as competition heated up and studios began pulling their content to launch their own streaming services (like Disney+ and Peacock), Netflix was forced to make a bold, multi-billion-dollar pivot. By creating its own library of exclusive content, Netflix aimed to build a powerful economic [[moat]]. These "Originals" are the bait to attract new subscribers and the glue to retain existing ones, giving the company a unique asset that competitors cannot easily replicate and reducing its long-term dependence on third-party content providers. ===== The 'Originals' Revolution: More Than Just a Label ===== ==== What Exactly Is a Netflix Original? ==== The "Original" tag is an umbrella term for different content acquisition strategies, each with different implications for ownership and long-term value. For an investor, understanding this distinction is key. * **Fully Owned & Produced:** These are the crown jewels. Shows like //Stranger Things// or //The Crown// are developed and funded from the ground up by Netflix. This means Netflix owns the [[intellectual property]] (IP) outright, giving it complete control over global distribution, sequels, merchandise, and other revenue streams. This is the most valuable category. * **Exclusive First-Run Licensing:** In this common scenario, Netflix acquires the exclusive rights to distribute a show made by another production company outside its original country. For example, the British show //Peaky Blinders// is a "Netflix Original" everywhere except the UK. Netflix doesn't own the IP but has secured exclusive streaming rights, making it a vital part of its international catalog. * **Co-Productions:** Here, Netflix partners with other studios or networks to share the production costs. In return, they typically share the distribution rights, with Netflix often securing exclusivity in most global markets. ===== The Investment Case for Originals ===== ==== Building an Economic Moat ==== The entire Originals strategy is a classic example of building a competitive advantage. In a world where anyone can license a library of old movies, exclusive, must-see content becomes the key differentiator. * **Brand and Stickiness:** A hit show like //Squid Game// or //Bridgerton// becomes synonymous with the Netflix brand, driving conversations and new sign-ups. Once subscribers are invested in multiple original series, they are less likely to cancel their subscription (a concept known as 'reducing [[churn]]'). * **Pricing Power:** With a unique and desirable library, Netflix gains more flexibility to raise its subscription prices over time without losing a significant number of customers. This is the definition of [[pricing power]]. * **The Flywheel Effect:** The strategy aims to create a virtuous cycle, or [[flywheel effect]]. Hit shows attract more subscribers, which generates more revenue. This revenue is then reinvested into creating even more high-quality original content, which in turn attracts even more subscribers. ==== The Cost and the Payoff ==== Building a global studio from scratch is breathtakingly expensive. For years, Netflix's content spending—a form of [[capital expenditure]]—dwarfed its income, leading to massive corporate debt and negative [[free cash flow]] (FCF). This is the central risk for investors. The company was betting that this short-term pain would lead to long-term dominance. To understand the financials, you must grasp [[amortization]]. A $200 million movie is a huge asset. Instead of booking the entire cost in one year, Netflix spreads (amortizes) that cost over the asset's expected useful life (typically a few years). How a company chooses to amortize its content can significantly impact its reported profits. Aggressive amortization (writing it off quickly) can depress short-term profits but gives a more conservative view of the asset's value. The ultimate goal is for the [[lifetime value]] (LTV) of the subscribers drawn in by the content to vastly exceed the cost of producing it. ===== A Value Investor's Checklist ===== ==== Key Metrics to Watch ==== When analyzing a company so heavily invested in a content strategy, traditional metrics are only part of the story. A value investor should focus on: * **Subscriber Growth and Churn:** Is the content investment translating into more customers and, just as importantly, are they sticking around? * **Content Spend vs. Revenue Growth:** Is the massive spending generating a proportional increase in revenue? Look for the gap between the two to narrow over time. * **Free Cash Flow (FCF):** The ultimate sign of a sustainable business. When, or if, will the company start generating more cash than it spends on content and operations? * **Debt Levels:** How is the content being funded? A high debt load can be a major risk if subscriber growth falters. * **Average Revenue Per User (ARPU):** Is the company successfully exercising its pricing power to earn more from each subscriber? ==== The Big Picture ==== The Netflix Originals strategy was a high-stakes, capital-intensive gamble to transform the company from a media distributor into a global media creator. It successfully built a powerful brand and a deep library of owned or exclusively controlled content. For a value investor, the core analysis revolves around a simple question: **Does the economic moat created by this exclusive content library justify the mountain of debt and years of negative cash flow it took to build?** The answer lies in the company's ability to eventually slow its spending, retain its massive subscriber base, and turn its market leadership into sustainable, cash-generating profits for its owners.