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Here's how much Netflix is spending to beef up its original content catalog

·Chief Tech Correspondent
Netflix is expected to report second-quarter earnings on Monday afternoon. Source: REUTERS/Mike Blake/File Photo
Netflix is expected to report second-quarter earnings on Monday afternoon. Source: REUTERS/Mike Blake/File Photo

Netflix (NFLX) is spending up to $2 billion on original content this year in its ongoing mission to become the go-to platform for streamed video.

The Los Gatos, California-based company will report second-quarter earnings on Monday afternoon after the markets close. Wall Street analysts are expecting Netflix to report $3.94 billion in revenues — up 41% year-over-year — as well as an addition of 6.2 million subscribers, which is slightly more than what Netflix forecast this April.

As Yahoo Finance previously reported, Netflix plans on spending roughly 25% of $8 billion — the equivalent of $2 billion — on original content throughout 2018, according to Chief Content Officer Ted Sarandos. While Sarandos initially disclosed the amount at MoffettNathanson’s Media & Communications Summit 2018 in New York in May, the figure was not been widely reported.

Netflix’s closest competitors, including Amazon (AMZN) and Hulu, declined to specify how much they’re spending this year on programming. However, MoffettNathanson, an independent research firm, estimates Amazon will spend $4.5 billion on licensed and original content this year, while Hulu will spend $2.5 billion overall on programming. (Hulu does not operate outside the U.S.)

Apple (AAPL), which hired two Sony Television execs in December to lead its original content efforts, could reportedly spend $1 billion this year on original content. That’s a fraction of what Netflix is poised to spend but unsurprising given Apple just began ramping up its efforts last year, with original shows like the reality show “Planet of the Apps.”

Indeed, MoffettNathanson suggests Netflix is very likely outspending the competition, including Hulu and Amazon on original content alone. Look no further than the sheer amount of original content being uploaded on a weekly or monthly basis on Netflix versus the amount of content uploaded on competing streaming services.

Original content as a differentiator

For Netflix, the company’s strategy continues to be beefing up its content catalog, with a heavy emphasis on original and local content as a way to distance Netflix from the competition and add new users each quarter. It’s a strategy that’s working so far: the company added 7.4 million subscribers during the first quarter — its second-largest period of subscriber growth ever — bringing Netflix’s total user base to 125 million.

This year alone, Netflix plans to have roughly 1,000 original series and films shot in 17 countries on the service. Over 400 of those originals are set to premiere sometime between now and the end of this year. Some of those originals are shows returning for another season — “13 Reasons Why,” “Grace and Frankie” — but many more are all-new properties, including the sci-fi series “Altered Carbon,” and the heavily hyped flick “The Cloverfield Paradox.”

At least some of those gambles on original content have paid off. According to Nielsen estimates, over 11 million U.S. viewers watched the buddy cop flick “Bright,” starring Will Smith, during the first three days it was available for streaming in late December. Although the movie was roundly panned by critics — Bright has a 26% rotten rating on RottenTomatoes — viewing numbers were enough for Netflix to greenlight a sequel. (Yes, really.)

Less stellar: audience numbers for the heavily-hyped “Cloverfield Paradox,” which debuted on Feb. 4 and got a big promotional push during Super Bowl LII. In comparison to “Bright’s” big opening, just 2.8 million U.S. viewers bothered to tune in during the first three days “Cloverfield Paradox” was available to watch.

Signing high-wattage talent

Seemingly more and more of those Netflix originals will also come from well-known Hollywood talent and public figures in the spotlight. In late May, Netflix announced it had signed Barack and Michelle Obama to a multi-year deal to exclusively produce TV shows and films for the company: scripted series, unscripted series, docu-series, documentaries and features that will steer clear of a “political slant” but nonetheless cover issues the president pursued during his eight years in the White House, Sarandos said at an event in New York in May.

The Obamas are the latest in a string of high-profile deals for Netflix, which also previously signed David Letterman, Ryan Murphy, creator of “The Assassination of Gianni Versace” and “Glee,” and “Scandal” creator Shonda Rhimes to exclusive deals.

Rhimes, who spoke to Yahoo Finance about the deal last November, discussed the benefits of moving over to Netflix, which included less creative constraints versus network TV.

“On Netflix, I think, there’s not necessarily a sense of, ‘You have to make a particular kind of show for a particular kind of branded audience,” Rhimes told Yahoo Finance. “The brand of Netflix is just creativity. And that’s exciting: the idea that I get to write in whatever manner I want to write, in whatever form I want to write because I want to write it, versus having to really be savvy about the constraints of the time period. You have a time slot, so there are certain stories you can tell at eight o’clock or at nine o’clock or at 10 o’clock. You know what audience is coming to you, so you know what your advertisers are looking for. None of that is a worry in streaming.”

For now at least, Netflix subscribers seem to agree.

A previous version of this article was published in June.

JP Mangalindan is the Chief Tech Correspondent for Yahoo Finance covering the intersection of tech and business. Email story tips and musings to jpm@oath.com. Follow him on Twitter or Facebook.

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