Investors in Netflix, Inc. (NASDAQ: NFLX) have been on a thrill ride. In its 2017 third quarter, the streaming pioneer boosted its total subscribers to 109 million, up 26% year over year, and grew revenue by 30% to $2.98 billion over the prior-year quarter.
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There has been justifiable concern about the company's increasing debt load and negative cash flow, so investors are looking for any indication from the company that its strategy will continue to bear fruit.
Netflix Chief Content Officer Ted Sarandos gave the keynote address at the UBS 45th Annual Global Media and Communications Conference and shared some interesting tidbits regarding the state of the industry and the future of Netflix. These four quotes from Sarandos provide insight into where the company goes from here.
Putting cost into perspective
Netflix is always making decisions about spending on content, and the cost of some programming gets an inordinate amount of press. An example is the highly successful original The Crown, which has been called "one of the most lavish television dramas ever made." Sarandos pointed out that most of the press about the show concerned the budget, which reportedly ran upwards of $100 million.
Sarandos pointed out that cost is not necessarily the best measurement of value:
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The truth of it is it's one of our most efficient shows. Relative to people watching and its ability to attract subscribers and retain subscribers. It's one of our most efficient uses of the money we spent on The Crown.
On Disney becoming a streaming competitor
Beginning in 2017, an agreement with The Walt Disney Company (NYSE: DIS) allowed Netflix to become the exclusive streaming platform for a wide variety of Disney content. Additionally, it supplied Netflix with characters for some of its most popular self-produced shows, including Marvel's Daredevil, Jessica Jones, and Luke Cage, which culminated in the recently released The Defenders. That partnership will soon be coming to an end.
In August, Disney announced that it would debut a self-branded streaming service, as well as one for its sports network ESPN, and end its exclusive content deal with Netflix.
Sarandos was asked what that meant to the company and to the marketplace. His response:
What Disney going direct to consumer means, I don't really know, and I'm not positive that they do, either. I know that they have a history of both direct-to-consumer and third-party selling of almost everything they're involved with...and Disney's always been very good at figuring out the magic formula for that.
Sarandos agreed that Disney was uniquely qualified to go over-the-top because of its iconic characters. He noted the company has created some "killer brands" and was very much a "destination" company. Sarandos said it remained to be seen if Disney will continue to license some content like The Defenders and The Punisher to Netflix, or if it would bring its entire portfolio in-house.
Update on House of Cards
House of Cards was Netflix's first self-produced original series and became the company's first breakout hit. The success of this initial venture convinced the company of the viability of its original-content strategy. Since the scandal involving star Kevin Spacey came to light, the sixth season of the political thriller has been in limbo.
Sarandos provided an update:
We have made an arrangement to produce a sixth season of House of Cards. It'll be an eight-episode season. It'll start production in early '18, and it will not involve Kevin Spacey, and will star Robin Wright.
A big push into feature films
Netflix recently revealed that it would significantly expand the number of movies it produces, releasing a whopping 80 feature films in 2018. When asked about movies as a portion of the content mix Sarandos stated:
Pretty dependably, a third of all the watching on Netflix is movies. In most places in the world, and from the beginning of our streaming initiative over ten years ago. So I think people do look to us for movie entertainment.
According to Sarandos, these features would vary in size and expense from a one-off "million-dollar Sundance hit" to "big event movies" like the Martin Scorsese-helmed gangster film The Irishman, which has an estimated production budget of $125 million. The film, which stars Robert De Niro, Harvey Keitel, and Joe Pesci, is scheduled to be released in 2019.
Overall, Sarandos didn't provide any groundbreaking surprises in his appearance. His comments show that Netflix is still continuing to pursue the same strategy that got it this far: providing great content to consumers on their own terms.
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Danny Vena owns shares of Netflix and Walt Disney and has the following options: long January 2018 $80 calls on Walt Disney. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.