Netflix sees 30.3% revenue spike, pours US$8bn into content creation

Netflix addicts, rejoice!

Netflix has announced it will spend approximately US$7 billion and US$8 billion on content in 2018, following a revenue growth of US$2,985 million for the third quarter of 2017, a year-on-year (yoy) growth of 30.3% compared to the previous quarter.

This comes after Netflix announced in July 2017 that it will spend up to US$750 million on content and global expansion. The move is an effort to increase its investment in content, especially in its original series, having benefited from its content strategy in the areas of revenue and profit growth.

It garnered a total streaming revenue of US$2,875 million in the third quarter, reflecting a 33.2% yoy growth driven by a 24% increase in average paid memberships and 7% growth in average selling price. International streaming saw a revenue of US$1,327 million while US streaming achieved a revenue of US$1,547 million. In Q3 2017, 5.3 million memberships were added globally, up 49% yoy, reflecting Netflix benefiting from a “strong appetite” for its original series and films, as well as the adoption of internet entertainment worldwide.

According to Netflix’s third quarter letter to shareholders, the company’s future “largely” lies in exclusive original content that creates excitement around Netflix and viewing satisfaction for its subscribers, such as Stranger Things, House of Cards, The Crown and Death Note. Netflix’s statement added that the company has US$17 billion in content commitments over the next few years. It is also working with content creators such as creator of Grey’s Anatomy Shonda Rhimes, as well as acquired Millarworld, a company founded by comic book writer Mark Millar. Netflix added that its aim is to collaborate with the “best creators” worldwide and own the intellectual property, so it can continue offering content to subscribers.

As Netflix boosts its marketing investment in anticipation of a growing content slate, it expects the Q4 2017 US contribution margin to be at 34.4%, a decline yoy and sequentially. The statement added that it spends “disproportionately” in the US to generate influencer and media awareness for its programming, which Netflix believes is effective in facilitating word of mouth globally.

Since 2013, Netflix has adopted the long term view that there will be a transition from linear TV such as broadcast and cable, to internet entertainment, the statement read. With competitors such as Disney launching direct-to-consumer services for ESPN and Apple reportedly planning to spend US$1 billion on original content, Netflix aims to improve “as rapidly as possible” to satisfy its subscribers and remain competitive.

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