For the most part, Netflix (NASDAQ: NFLX) is known for its wide selection of streaming TV series -- from licensed content to its own Netflix Originals. But the company has been making a big push into self-produced feature-length films recently. This strategy is getting put to the test more than ever as the company rolls out more feature films.
Fortunately, one of Netflix's just-released films highlights promising potential for the company's foray into feature films. Bird Box, starring Sandra Bullock, garnered views from nearly a third of the company's global subscriber base, Netflix said in a tweet on Friday.
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Over 45 million Netflix accounts had watched Bird Box during the first seven days of the thriller's availability on the company's streaming platform. With 137 million streaming memberships as of the end of the company's third quarter, this means nearly a third of the company's accounts had already streamed the movie. Of course, the movie's reach extends beyond these 45 million accounts since many of these streams were likely viewed by more than one user.
Management has been particularly optimistic about original films ever since the company witnessed the success of Bright, an action film released late last year. Representing the company's largest investment in an original film at the time, Bright was an important test for the streaming giant. Fortunately, the film was "a major success," management said in the company's shareholder letter for its fourth quarter of 2017.
The movie "drove a notable lift in [member] acquisition," management noted. The success meant Netflix is planning a sequel for the film and further investment in feature films, management said at the time.
Netflix has since launched a range of original films, including romantic comedies Set It Up, The Kissing Booth, and more. Indeed, Netflix said this summer that it planned to launch 86 original films in 2018 -- more than the top four traditional studios combined.
Netflix's early success in self-produced films has helped the company land movie deals for upcoming releases by top directors Michael Bay, Martin Scorsese, Alfonso Cuaron, Susanne Bier, Paul Greengrass, and Chris Columbus.
Every dollar counts
Unsurprisingly, Netflix wants to keep ramping up its investments in feature films. This is reflected by management's guidance for a sequential decline in its operating margin in the second half of 2018. A higher mix of original films during the second half of the year is expected to weigh on profitability since film amortization is front-loaded due to accelerated viewing trends compared to TV series.
Netflix's growing appetite for original TV series and, now, self-produced films is costly. Self-produced content requires significant upfront investments, pressuring cash flow. Management expects free cash flow for 2018 to be around negative $3 billion.
Over the long haul, Netflix believes these investments will pay off in helping sustain revenue and operating profit growth. But investors will want to keep an eye out for more stories like the success of Bird Box to help support the case for continued investments in original films.
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