Netflix grows subscriber base even with fewer top movies

On Monday, Netflix reported that it added 370,000 new subscribers in the U.S. in the third quarter, 20% more than the 300,000 it anticipated, and 3.2 million new subscribers internationally, way more than the 2 million it expected. Investors cheered the news, sending Netflix shares soaring by more than 20%.

What’s particularly interesting about Netflix’s subscriber growth is that it is taking place despite the fact that Netflix’s catalog appears to have fewer and fewer big hit movies.

Last week, Andrew Dodson of the Streaming Observer noted that “Netflix now only has 31 movies from IMDB’s top 250 list.” That represents just around 12%, down from 49, or 20%, two years ago according to an analysis conducted by a Reddit user.

While browsing Netflix, Dodson’s wife commented, “I haven’t heard of any of these movies. Aren’t there any good movies on here?” So if Netflix’s catalog, how is it attracting so many new subscribers, particularly outside of the U.S.?

The answer: original content, which Netflix has been investing heavily in. This year, Netflix will spend $5 billion on original content, and next year, the company expects that figure will jump to $6 billion.

Original content is king

All told, Netflix is on its way to producing more than 1,000 hours of original content per year, and with hits like Orange is the New Black, House of Cards and Narcos, the company’s bet on original content, perhaps one of the biggest in the digital media world, would seem to be a good one that is paying off.

As TechCrunch’s Darrell Etherington has previously pointed out, while original content production has a higher up-front cost, “Licensing arrangements with outside TV and film distributors have a fixed term, and thus represent a recurring cost if you want to continue offering their content in your library. Original content is a one-and-done expense…which then permanently [contributes] to the breadth and size of your video catalog.”

While media companies, both traditional and digital, grapple with challenges like ad blocking, cord-cutting and piracy, Netflix, by transforming itself from a U.S.-focused service that delivered DVDs by mail to a global streaming distributor of its own original content, not only appears to be validating that the old adage content is king is still valid, but also proving that bold digital transformations backed by investment in content are still possible in today’s super-competitive media market.

Of course, there are still challenges, like China, and some analysts remain unconvinced that Netflix’s huge cash burn will ultimately pay off, but for now, the company’s rapid subscriber growth, which occurred despite a price hike, is suggesting that Netflix has its pulse on the market and is delivering a product many people want.