Image: Your Honor, Showtime
Nothing in the entertainment industry is permanent. Trends and fads come and go as audiences prove eternally fickle. Business strategies are put forth on a revolving door until one succeeds and is then duplicated to death. There’s a stop-and-start cyclical nature to the crazy game that Hollywood plays.
Take, for instance, the legacy studio approach to Netflix. In the 2010s, these companies were happy to feast on generous licensing fees offered by the tech-backed upstart. That is, of course, until they all realized they were authoring their very own struggles by doing so. Disney CEO Bob Iger famously described it as “selling nuclear weapons technology to a Third World country, and now they're using it against us.”
As Disney, Warner Bros., NBCUniversal, and Paramount all began launching their own competing streaming services, they started hoarding their own programming in-house to drive customers to their vertically integrated content ecosystems. Netflix had to make due with less licensed programming and more originals.
Yet in one of the most unintentionally hilarious signals of William Goldman’s famous adage that no one truly knows anything, Wall Street soured on the streaming business model, plunging media share prices in the process. With a renewed emphasis on revenue and profit, the river of licensing began to flow once more, SVOD growth be damned!
This is reflected in the worldwide demand shares generated by Netflix’s licensed TV catalog versus the company’s library of small screen originals. According to Parrot Analytics, licensed programming accounts for nearly three-fourths of Netflix’s global TV demand — and has even increased slightly since the new year began — compared to Netflix’s TV originals(29.58%). We’ve seen this time and time again; Netflix’s growing scale enables a wider array of audiences to discover and enjoy a pre-existing TV title. This applies to straight licensed fare such as AMC’s Breaking Bad, USA Network’s Suits and most recently Showtime’s Your Honor as well as cancelled linear series that Netflix revived to impressive success such as You, Lucifer and Manifest.
Licensing is generally less expensive than original development and comes with the added benefit of pre-existing audience awareness. For every unexpected Baby Reindeer-esque breakout hit from Netflix, there are dozens of original series that generate little-to-no viewership. There’s a reason Netflix agreed to pay $100 million for one more year of Friends before HBO Max launched.
None of this is news to those that have been paying attention. But what has gone overlooked, particularly given the course-reversal in Hollywood, is what happens to Netflix should the licensing market slow down once more. Syndication will never go out of style in this business; multiple windows of monetization is obviously the way to go. But Disney expects to finally turn a streaming profit by the end of this year. WBD claims that Max is already mostly profitable (though the company includes linear HBO financials into that accounting). Paramount has publicly angled for a domestic streaming profit in 2025. NBCU has narrowed Peacock’s losses in recent quarters.
If and when these services ever reach consistent profitability, while potentially seeing stabilization in other corporate divisions, it’s probable that executives won’t want to arm Netflix with as much content. Netflix survived when it was forced to rely more on originals in the early 2020s, but this span was not without its complications and obstacles. It will be harder (though not impossible) for the market-leader to do it again should the time come.
That is why the company is emphasizing the growth of its ad-supported platform, the looming inclusion of more sports event programming, and the longer-term impact of its gaming investments. Alternative growth narratives are needed to head off any potential investor skepticism in the future.
Netflix can’t get complacent despite the insurmountable lead it appears to have built. Preparing for the worst, even if it never comes, is just good strategic sense.
