Netflix's Lead in Original Content Is Widening
People love Netflix (NASDAQ: NFLX) originals. 40% of consumers said the streaming service has the "best original programming," according to a survey by Morgan Stanley analysts conducted in March.
The next closest competitor was WarnerMedia's HBO, a subsidiary of AT&T (NYSE: T). Eleven percent of consumers said HBO originals are the best, down 3 percentage points from last year. Hulu, now fully controlled by Disney (NYSE: DIS), was next on the list at 6%.
The gap between Netflix and its competition for original programming is widening, and that's extremely important for the former as it faces the potential loss of some of its most popular content over the next few years. But new rivals could prevent that gap from increasing in the future.
Original programming gets people to subscribe
While various media and technology companies rush to enter the direct-to-consumer streaming video market, each service has one thing in common: They're all creating and promoting original content for their respective services.
That's because original content drives interest, and interest drives subscriptions. People usually won't pay $10 per month just to watch reruns of their favorite shows from broadcast television. That content is stuff that rounds out the library, just as syndicated series fill up time slots on cable networks.
Last year Netflix increased its marketing budget primarily in an effort to promote the deluge of original content the company released. The streaming service managed to add more subscribers last year, even domestically, than it did in 2017 as a result of the increased marketing on originals. That's despite a price increase in late 2017.
Netflix's push to promote its originals may be what's driving consumer perception that its content is the best in the industry. That's essential as it's set to lose content from WarnerMedia, Disney, and other major media companies as they launch their own streaming services. Having a slate of originals considered superior to the competition will ensure Netflix doesn't lose too many subscribers to the bevy of new services coming out over the next year.
The second most popular response after Netflix
One of the interesting responses from the analyst at Morgan Stanley's survey results is that a lot of people simply don't know which media company offers the best original content. Thirty-two percent of respondents said they don't know where to find the best original productions. That's in line with last year's results.
In other words, consumers are open to checking out (and paying for) multiple sources for entertainment.
That's good news for Netflix as well as forthcoming competition from Disney, AT&T, and others. As the a la carte menu for video entertainment expands, consumers may become more open to spending money on streaming services.
Importantly, new streaming services don't have to come at the expense of incumbents like Netflix, but could come from other video entertainment sources like pay-TV subscriptions or DVD sales. In fact, the increase in streaming services with great original content may be a benefit to Netflix and other existing players in the streaming video ecosystem as more consumers cut the cord.
With the number of new streaming services coming out this year, investors can expect the number of respondents unsure of which has the best original content to increase over time -- and that's not necessarily bad for Netflix.
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.