Go Back to the Future, Netflix: Re-Embrace Content Licensing

With a new phase of the streaming wars forcing strategic shifts for all combatants, its time for the original player to reassess another key part of its own strategy.

Netflix co-CEO Ted Sarandos has spent the past decade, and billions of dollars, transforming the streamer into an original content factory in order to replace many of the shows and movies studios had licensed to the service. The more originals Sarandos ordered, the less licensed content he needed to have.

But despite the explosion of hit original series and the loss of marquee titles such as Friends and The Office, data provided to VIP+ by PlumResearch shows licensed content still made up nearly half of Netflixs U.S. viewing time for series in 2022.

Month to month last year, U.S. viewership of Netflixs original series ranged from about 47% of TV viewing time in April to 60% in November, when the monster hit original series Wednesday dropped. Looking at the year as a whole, original content made up more than half 53 percent of total series viewing time in the U.S., up from about 22% in 2017 and 44% in 2021.

Yet this surge in original series viewing was primarily driven by a small handful of titles. PlumResearch analysis revealed most of the streamers top 10 shows by total time spent in 2022 were licensed series. Though it was the most streamed show by a wide margin, Stranger Things was the only Netflix Original among the top five.

While this analysis is based on titles' hours streamed, giving shows with larger episode counts an advantage, the fact remains that huge quantities of Netflix users' viewing time are being spent on licensed series.

ABCs Greys Anatomy, for instance, is consistently one of the heaviest-viewed shows on Netflix, PlumResearch chief analytics officer Andrzej tka said in a statement to VIP+. In contrast, hit productions released by Netflix tend to be heavily viewed in a short time period but have much smaller long-term viewing.

Indeed, popular licensed shows like Greys and Criminal Minds have high rewatch value on Netflix, evinced by their repeatedly ranking among the most streamed series year after year something no original series has managed to achieve without a new season to bolster its viewership in the given year.

Still, the shrinking library of licensed shows on Netflix would suggest original content will drive its viewership going forward. As tka noted, Even if Netflix continues to modify its content creation strategy, we expect the [viewing time] share of licensed content to fall further below 50% in the next several years.

This assumes, however, that Netflix will continue to lose its licensed content to rival services over those next several years, which until recently would have been a reasonable assumption. But in the wake of the Great Streaming Reset of 2022, with all the major SVOD players now reassessing their strategies, the trajectory of Netflixs catalog no longer seems so certain.

Indeed, studios once eager to consolidate their libraries on their own proprietary streaming platforms are now pivoting back to loaning out content in their quests for profits. Disney CEO Bob Iger has recently said as much: As we look to reduce the content that we're creating for our own platforms, there probably are opportunities to license to third parties," Iger stated at a Morgan Stanley conference last month.

Warner Bros. Discovery, meanwhile, has already shifted to this approach, pulling numerous original titles from its HBO Max service to license to FAST providers instead.

Its an apt strategy. Given the current economic climate in Hollywood, studios would do well to consider which of their library titles would be better off generating revenue through a Netflix licensing deal. After all, The Office migrating from Netflix to Peacock did not ultimately result in an explosion of subscribers for the NBCUniversal service, and one wonders if the series would be more valuable to NBCU as the beneficiary of a multimillion-dollar licensing contract.

Netflix, too, would be wise to embrace this strategy and pivot back toward an image as the premier provider of licensed content. Though the massive investment in originals proved to be the right move for the first phase of the streaming wars, the changing tides in the direct-to-consumer business necessitate a new course ... which happens to be its old course.

Subscriber retention has become a significant concern for Netflix of late amid rising churn, and while those high-profile, flash-in-the-pan originals are good for acquiring users, strong library content is needed to retain them, as VIP+ has previously outlined.

Furthermore, as the streamers leadership seeks to rein in content spending, Netflix would be well served to scale back its output of new, expensive original series and redirect some of its investments toward acquiring more in-demand licensed titles. This would not only be more cost-effective, but would help aid subscriber retention in between releases of original hits.

Of course, such a strategy could very well drive up the prices Netflix will need to pay to license such titles, but there will be a limit to studios leverage as they grow more and more desperate to show Wall Street they can hit their profitability targets.

This dynamic may be playing out already: Disney-owned sitcom Arrested Development had been slated to leave Netflix on March 15, but by the end of the month, Netflix had announced the show would remain. Clearly, theres still money to be found in the banana stand.