Get Ready for the Netflix (NFLX) Original Content Overload

December 3, 2012 8:54 AM EST Send to a Friend
Netflix (Nasdaq: NFLX) is banking more and more on shifting from being a streaming content provider, to one more focused on original programming. Both it and investors are hoping the move moves customers to watch more.

Since debuting "Lillyhammer" last February, Netflix has pushed more into development of new content. This upcoming February will see the introduction of "House of Cards," followed by new episodes of "Arrested Development," the mystery show "Hemlock Grove<" Orange is the New Black," and "Derek," a comedy by British comedian Ricky Gervais. There will also be new episodes of " Lillyhammer," the WSJ noted Sunday.

The move might give Netflix some clout against competitors HBO and Starz. While pricing for Netflix is expected to stay at $7.99 per month for streaming-only packages, HBO and Starz generally charge $15 to $20 per month.

Since proposing a split of its DVD-by-mail business in 2011, Netflix has seen the unit continue shrinking. Given the higher-margin nature of DVD rentals (lower licensing costs versus streaming the same media), Netflix needs to move to maintain its profitability trajectory.

Netflix says it plans to spend about 5 percent of its $2 billion annual content budget on original programming, mainly because it licenses similar content from other providers.

Should it keep pricing firm, the only way for Netflix to pay for any increased content costs would be expansion. With just 81 million households in the U.S. equipped with broadband, CEO Reed Hasting's objective of 60 million to 90 million streaming subs might be a lofty one, but material growth from its current base of 25.1 million domestic subs is still achievable.

Shares are indicated higher in early trading.


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