Netflix's Plan Doesn't Include Following Amazon Into Live Events

By Daniel B. Kline Markets Fool.com

Netflix (NASDAQ: NFLX) has found a content formula that works, and while the company will expand the edges of that plan, it won't be making any major changes. The streaming giant closed the first quarter with 98.75 million subscribers, up from 93.8 million at the close of the previous quarter. In addition, the company saw its revenue grow by 34.7% year-over-year. It also saw net income jump from $28 million in Q1 2016 to $178 million in Q1 2017.

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Netflix has hit these new highs driven by two things that go hand in hand -- its global expansion to nearly every country and its aggressive original content strategy. In its Q1 letter to shareholders released Monday, the company offered details on its plans for content across the world going forward while confirming that despite rival Amazon (NASDAQ: AMZN) making a deal to stream a limited slate of live National Football League (NFL) games, Netflix has no plans to broadcast live events. "Our focus also is on on-demand, commercial free viewing rather than live, ad-supported programming," wrote the company.

Original content has become the core of Netflix's service. Image source: Netflix.

What is Netflix not doing?

The closest the streaming leader has come to live programming is Chelsea Handler's talk show, which in its first season released three episodes each week, instead of a full season at a time. That experiment was largely a failure and Handler's show will tweak it for its second season, offering one hour-long episode each week, instead of three half-hour ones.

The company made it clear in its letter to shareholders that while it has moved into areas like reality competition shows (Ultimate Beastmaster, where athletes from around the world competed on a giant obstacle course), it thinks streaming live events would be a mistake.

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"... investors ask us about Amazon's move into NFL football. That is not a strategy that we think is smart for us since we believe we can earn more viewing and satisfaction from spending that money on movies and TV shows," the company wrote.

What is Netflix doing?

While it won't be airing live NFL games, or any other live programming, Netflix does have huge content plans. In a broad sense, the company wrote, it's making an effort to improve its "content offering to match local tastes in Asia, Middle East, and Africa," while it acknowledges that it has a long way to go to equal the strong progress it has already made in Latin America.

In more specific content plans, the company plans continued investment in comedy and an extended commitment to feature films. In the shareholders letter, Netflix noted that its recent comedy special from Dave Chappelle was its most-viewed comedy special ever and that its global standup specials like French comedian Gad Elmaleh's Gad Gone Wildhave been hits in their target markets.

Netflix also plans to continue working with comedic actor Adam Sandler by renewing its deal with him for four more movies in advance of the third film in the original four-movie deal being released. Sandler's films may not be critically acclaimed (to put it mildly), but they have been successful for the streaming service.

"We continue to be excited by our Sandler relationship and our members continue to be thrilled with his films," the company wrote. "Since the launch of The Ridiculous 6, Netflix members have spent more than half a billion hours enjoying the films of Adam Sandler."

In addition to reupping with Sandler, the streaming leader has also hired Scott Stuber to head up its original film division. Stuber has been given a mandate to "increase both the portfolio and the percentage of films that delight many of our members relative to the film's cost."

What does this mean for Netflix?

Netflix has shown great discipline in sticking with what works, while trying to expand the edges of that bubble. It's easy to see why Amazon wants NFL games to draw an audience for its Prime Video service. Football games, however, have almost no long-term value while a comedy special or an original series can remain a draw for decades or longer.

With each piece of content it adds, whether it be a global property like the company's superhero shows from Marvel, or a market-specific series, Netflix becomes stronger. Sandler's movies may be awful, but his core audience of 12-year-old boys and men who think like 12-year-old boys is an ever-regenerating one.

Netflix has a model that works and grows the value of the service over time. Adding comedy, movies, and localized content will continue to push the company forward, growing its subscriber base while keeping existing customers happy.

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Daniel Kline has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Netflix. The Motley Fool has a disclosure policy.