Netflix’s Three-Pronged Approach to Content Acquisition

Reed Hastings

Through a couple of deals with Lionsgate, Netflix acquired rights to stream all seven seasons of AMC hit series Mad Men. The first four seasons of the hit AMC series will begin streaming this summer, with subsequent seasons beginning to appear on the streaming service after the full season has aired. All in all, it’s a big win for the subscription video service, which is increasingly encroaching on traditional cable TV networks.

The Mad Men deal comes as Netflix has secured a number of other pieces of content in the past few months. It struck an exclusive deal to license two seasons of the Kevin Spacey-David Fincher series House of Cards not long after it acquired rights from Disney, CBS and Fox to add older seasons of shows like Lost, Star Trek and Glee to its streaming library.

Already, we can see that Netflix is employing a multi-pronged approach to growing its library:

  • It continues to acquire large stores of long-tail catalog content cheaply, relying on its content recommendation engine and vast store of titles to keep subscribers interested in its service.
  • At the same time, it is investing in select popular content -– like Mad Men and Glee –- as a way to attract new, mainstream users to the service.
  • Given the increasing cost of licensing shows and movies that have a proven track record, Netflix is also placing bets on projects –- like House of Cards –- that aren’t yet proven, hoping that it will have a hit.

The way that Netflix has built its content library is reminiscent of early cable networks, which relied almost entirely on syndicated rerun TV shows and older films to appeal to viewers. In recent years, led by the development of original programming on the part of basic cable networks like FX, USA and AMC, we’re encountering what could be a golden era of cable TV –- and a sign of things to come for Netflix.

Netflix will likely continue to build a content mix that has some variation of deep long-tail content, newer popular hits and exclusive access to original programming. That last piece is vital, and will be the key to Netflix being able to control its own destiny, rather than relying on others for scripted programming. It will also help set it apart from other me-too streaming services that might appear.

Some have suggested that Netflix could add another type of content to the mix: shows with loyal fan bases that weren’t popular enough for broadcast TV. If a show like Chuck, which has spent years on the verge of being canceled, is let go by a major broadcast network, you could see Netflix working with its producers to continue its run online.

Netflix doesn’t necessarily need to aggregate large live broadcast audiences to make production worthwhile, as it can drive viewers to the content over time. In that way, the economics of producing these types of shows favor it over the broadcast networks. And because Netflix viewership comes mainly through the company’s recommendation engine rather than through some kind of outside marketing, it could help expose subscribers to shows they wouldn’t necessarily have watched.

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